Ooh, Not Sure About That

There is a post up at Seeking Alpha by Alligator Investor that I’m not sure is correct, conceptually. The post looks at the volume of all of the Rydex Currency Shares ETF. The euro, FXE, clearly has the most volume by a mile but I’m not sure I can agree with AI’s conclusion that “FXE is clearly the best choice for a low cost, exchange-traded hedge against a weakening dollar.” FXE has been the volume leader of the bunch ever since the others were listed in last summer but, to use an analogy, Microsoft is not a better proxy for tech solely by the virtue of having more volume than Qlogic (QLGC). Those two tech stocks are totally unrelated. The fundamental goings on with the seven different countries behind the currency ETFs may or may not be totally unrelated. Making a decision between several investments based on volume alone doesn’t seem to make sense to me, maybe I am missing something. The chart captures all of the single currency ETFs. Three other currencies have outperformed the euro; the peso, the Aussie and the British pound. The argument seems to be based on volume, which of course looks back but the volume leader has not been the price leader, not even close. Looking forward the euro may or may not be the top performer but volume in the ETF will not determine what currency does lead. FXA and FXS are client and personal...

Embracing Volatility

I have written several times about expecting real roller coaster rides with some long term themes. This is very important to think about for the parts of your portfolio that you do think about as being five year ideas, assuming you think that way at all. This is a year to date chart of the ICEX-15 ETF I own personally. For new readers, I wrote several pieces about investing in Iceland over the last year and half. For now access is very limited. One way in is to open an account at Kaupthing Bank, the largest bank in Iceland, and wire money into the account for investment. The long term thesis, as I see it, is that Iceland will become much more important in the world economic order in the coming years. There has been and will be a lot of growth, some inflation, deficit issues and I think I saw first hand a very adaptable economy and society. This is my perception not an attempt to sway you to buy something. Given that this is what see I have a small investment account that I will add to in small amounts maybe once a year. I labeled my entry point on the chart. It has been quite a ride so far. The worst of the news maybe behind the Icelandic market but the volatility could persist for a while still. While this may require training on your part, if you have invested in something that you really think is a five year, or longer, theme it is very important to really embrace the fact that short term moves,...

More Indexing

My post yesterday about indexing drew a slew of great comments, thank you. While a follow up is appropriate it may take a couple of post to finish the thread. TomG who knows a thing or three stated a point I have been making, only worded a little differently, he said he wants to capture stocks’ general trend of going higher. He rightly questions the value of paying for help that may not get you to your financial goal. TomK logically points out that a portion actively managed (either on your own or with help) blended with passive buy and hold has merit which it does. George tied it all together noting that to many do-it-yourselfers succumb to emotion, make mistakes and then repeat those mistakes later. The context of George’s point is along the lines of mutual fund shareholders lagging the funds they own by a mile due to poor investment decisions. The studies done on this reveal some horrible numbers. There are obviously a lot of moving parts and aspects of this to analyze and believe it or not we won’t solve this here. Capturing most of the effect, as TomG says, is the big macro behind this entire discussion. What is the best way to capture most of the effect is the entire discussion. Success can be had with buying four funds and rebalancing once a year, scalping $0.20 a dozen times a day and everything in between. So this is about finding the strategy that is right for you.The obstacle to doing it yourself is emotion. I write this about when I say this is...

Silver Wheaton

I see where Bill Cara has a favorable post on Silver Wheaton (SLW). Bill says making the case for silver is not difficult. I personally have struggled with the fundamentals but that is my own blind spot. SLW is an interesting stock (I have no position personally or for clients). The basic story as I understand it is that silver often (maybe always?) is a byproduct of mining for other things. Meaning at a copper mine for example they may also pull out silver. SLW contracts with those miners to buy their silver at pre-set rates that are below market rates. SLW then sells it to silver buyers and makes a profit on the trade. Apparently this arrangement is a good deal for these miners that pull it up with other things. That is my understanding anyway, you can read Bill’s post and find plenty of other content about the company to get all the facts for...

Indexing

Barry Ritholtz has an interesting post up citing research that indexing still beats active management. This is an important nugget of information to have in your arsenal of knowledge as you try to manage portfolios, yours or for other people. The debate between passive and active has been around for a while and is not likely to go away but I think it overlooks something that I have tried to explore here with a few posts. Being 100% invested in a particular index will have a certain amount of growth that can be expected and some measure of volatility associated with that growth. A mutual fund manager, hedge fund manager and in many instances an investment manager (what I do) do need to show outperformance at some point for their clients or partners or they may start to lose business. If you are managing your own portfolio the need to beat the market becomes less significant. A 50 year old with several million saved, a high paying job he wants to keep doing and a modest lifestyle needs growth but probably not market beating growth and the volatility that might go with it. A 60 year old with $300,000 saved probably has a much greater need to be exposed to normal market volatility because this person is more likely to need to keep up with the market. Part of managing your own portfolio is accurately assessing what you need your portfolio to do. Being too aggressive when you have more than enough saved can have the same result as being too conservative when you haven’t saved what you need;...