Krypto is still snoozing on the sofa ... what a princess!
Her model is quiet, no orders. We are riding the bull elephant to the next water hole. My guess is that arounf S&P 1350 she will do some across the baord selling to stock up on provisions [aka cash] for the next beefer panic.
This post, while boring, proves that I still work for the benefit of my millions of readers :)
Showing posts with label investments. Show all posts
Showing posts with label investments. Show all posts
Thursday, January 26, 2012
Wednesday, August 3, 2011
Wednesday ... Work!
Krypto got up early this morning to check her model and found some work to do. Mrs. B's selling of some stocks a few weeks ago proved rather prescient ... ok, she out-invested Krypto on that move.
The model has rather strong signals to buy some US stocks, European stocks and to sell some gold. Yesterday Ms. Market was quite troublesome, slapping anyone who made any positive move for her. I wonder if it's too soon - the charts are ugly. But ... we shall obey the machine.
Word of the Day
"Hermetic" - adjective [$10] also hermetical
Hermetic means 1. with an airtight closure; 2. protected from outside agencies; 3. a. of alchemy or other occult sciences (hermetic art); 3. b. esoteric.
Sentence: The US is not a hermetic entity that can go on whatever path it chooses; that freedom was lost when the US economy became dependent on foreign dollar denominated loans. BUT as those loans are dollar denominated, the US is far, far, better off than nations which borrow in currencies other than their own.
The model has rather strong signals to buy some US stocks, European stocks and to sell some gold. Yesterday Ms. Market was quite troublesome, slapping anyone who made any positive move for her. I wonder if it's too soon - the charts are ugly. But ... we shall obey the machine.
Word of the Day
"Hermetic" - adjective [$10] also hermetical
Hermetic means 1. with an airtight closure; 2. protected from outside agencies; 3. a. of alchemy or other occult sciences (hermetic art); 3. b. esoteric.
Sentence: The US is not a hermetic entity that can go on whatever path it chooses; that freedom was lost when the US economy became dependent on foreign dollar denominated loans. BUT as those loans are dollar denominated, the US is far, far, better off than nations which borrow in currencies other than their own.
Friday, March 18, 2011
Obey the Machine
Investment Rule #7
Don't try to be a hero. Don't be a swashbuckler. Don't be a nervous Nelly. Don't listen to the bloviators on the financial press. Don't listen to the pundits.
Don't worry ... be Happy ... Obey the Machine.
Just follow the investment rules and be happy.
Keep your emotions under control.
If you try to "add value" to the Machine's prescription, it's rather likely you will subtract value. You'll be buying what's in favor when you should be taking profits; you'll be bailing out in panic when you should be buying cheap assets; or you'll simply be randomly adding risk with "coin toss" moves with no net returns.
Don't do it. Just Obey the Machine.
And read this blog.
Actions
The jobs number was good, some economic numbers were good. Stocks rallied worldwide. Hmm that morning I received an email from a pundit saying the correction had begun. Huh?
The Machine aka Krypto has no new actions.
Word of the Day
"Suspire" - verb [$100] a T. S. Eliot word
Suspire means (intransitive) 1. to sigh; 2. to breathe; (transitive) 3. to sigh, to utter with long, sighing breathes.
Sentence: Seeing a well-paid pundit write that the correction has begun after the markets are down about 5%, Bunkerman can only suspire with disgust, "what utter bilge".
Don't try to be a hero. Don't be a swashbuckler. Don't be a nervous Nelly. Don't listen to the bloviators on the financial press. Don't listen to the pundits.
Don't worry ... be Happy ... Obey the Machine.
Just follow the investment rules and be happy.
Keep your emotions under control.
If you try to "add value" to the Machine's prescription, it's rather likely you will subtract value. You'll be buying what's in favor when you should be taking profits; you'll be bailing out in panic when you should be buying cheap assets; or you'll simply be randomly adding risk with "coin toss" moves with no net returns.
Don't do it. Just Obey the Machine.
And read this blog.
Actions
The jobs number was good, some economic numbers were good. Stocks rallied worldwide. Hmm that morning I received an email from a pundit saying the correction had begun. Huh?
The Machine aka Krypto has no new actions.
Word of the Day
"Suspire" - verb [$100] a T. S. Eliot word
Suspire means (intransitive) 1. to sigh; 2. to breathe; (transitive) 3. to sigh, to utter with long, sighing breathes.
Sentence: Seeing a well-paid pundit write that the correction has begun after the markets are down about 5%, Bunkerman can only suspire with disgust, "what utter bilge".
Thursday, March 17, 2011
Taxes
Investment Lesson #6
Minimizing taxes will help increase your returns. Eventually and over time, you'll need to pay attention to taxes. The issues are very complex, however, and are different for many people. "What is to be done" about taxes depends on the tax rates, AMT or not, income expectations, prospects for tax rate change, etc.
Here are a few simple ideas.
For people able to save via an IRA, the Roth IRA is better for the long term. The traditional IRA is OK, however, if you are at least in the 25% rate bracket and can benefit from the income exclusion for IRA savings.
Having savings+investments in BOTH taxable accounts (normal brokerage, etc.) AND in tax-deferred accounts (IRA, 401K) is best. Then you can make adjustments to minimize taxes. Moves that result in gains are taken in the tax-deferred account; moves that result in taxable losses are taken in the regular account.
Try to keep the fixed income asset classes in the retirement accounts and the core parts of the long term equity classes in the regular taxable accounts. You'll not exchange those much, if ever, and any gain will be taxes at low, long term capital gains rates. The tax-deferred income can be reinvested tax free in the tax-deferred accounts, and when the income is drawn at retirement, it's simply taxed once.
Core gold & silver can be coins kept in the bank, but keep non-core amounts of the ETFs in a tax-deferred account. Those are taxes at higher rates so any exchanges (which are frequent) need to be done in a tax-deferred account.
I tend to dislike the tax-deferred annuity intensely; those are often sold to people who really should not invest in them and the fees are huge. One can buy VTI and not sell for 30 years, then pay a one time capital gains tax at a low rate. That's the ultimate tax-deferral and it costs nothing.
It's a complex area; be sure to consider any tax-driven decisions carefully.
Actions
None today.
Word of the Day
"Transvalue" - verb, transitive [$100]
Transvalue means to re-estimate the value of, esp. on a basis differing from accepted standards, reappraise, reevaluate.
Sentence: A major change in one's marginal tax rates must cause one to transvalue one's long term investments.
Minimizing taxes will help increase your returns. Eventually and over time, you'll need to pay attention to taxes. The issues are very complex, however, and are different for many people. "What is to be done" about taxes depends on the tax rates, AMT or not, income expectations, prospects for tax rate change, etc.
Here are a few simple ideas.
For people able to save via an IRA, the Roth IRA is better for the long term. The traditional IRA is OK, however, if you are at least in the 25% rate bracket and can benefit from the income exclusion for IRA savings.
Having savings+investments in BOTH taxable accounts (normal brokerage, etc.) AND in tax-deferred accounts (IRA, 401K) is best. Then you can make adjustments to minimize taxes. Moves that result in gains are taken in the tax-deferred account; moves that result in taxable losses are taken in the regular account.
Try to keep the fixed income asset classes in the retirement accounts and the core parts of the long term equity classes in the regular taxable accounts. You'll not exchange those much, if ever, and any gain will be taxes at low, long term capital gains rates. The tax-deferred income can be reinvested tax free in the tax-deferred accounts, and when the income is drawn at retirement, it's simply taxed once.
Core gold & silver can be coins kept in the bank, but keep non-core amounts of the ETFs in a tax-deferred account. Those are taxes at higher rates so any exchanges (which are frequent) need to be done in a tax-deferred account.
I tend to dislike the tax-deferred annuity intensely; those are often sold to people who really should not invest in them and the fees are huge. One can buy VTI and not sell for 30 years, then pay a one time capital gains tax at a low rate. That's the ultimate tax-deferral and it costs nothing.
It's a complex area; be sure to consider any tax-driven decisions carefully.
Actions
None today.
Word of the Day
"Transvalue" - verb, transitive [$100]
Transvalue means to re-estimate the value of, esp. on a basis differing from accepted standards, reappraise, reevaluate.
Sentence: A major change in one's marginal tax rates must cause one to transvalue one's long term investments.
Wednesday, March 16, 2011
Fees will Flatten You
The financial industry is fat. Bloated. Littered with fee traps. Teeming with piranhas and wolves who want your money, mostly for doing nothing. Certainly nothing of value. Half the industry should not exist.
If you want to succeed at long term investing, you must minimize the fees and pay only for value received.
Here's a simple example:
Krypto invests in no fee index funds in accounts with no wrap fees and other fees. Suppose she gets 8% per annum. After 20 years, every $10,000 Krypto invested in the beginning has grown to $46,600.
You invest in funds charging fees in accounts with management fees and pay transaction fees, all together amounting to 2% per year in fees for nearly the same investments. That means your net return is 6% per year. After 20 years, every $10,000 has grown to only $32,070.
Golly, you, a gullible human, end up with about 2/3 of what my dog gets. She's retiring on filet mignon while your get fried mystery meat.
Last Friday I told you how to avoid most fees: Use Vanguard index funds and / or Vanguard ETFs in a Vanguard brokerage account. The fees are as close to zero as possible, or are zero. Just follow the investment lessons of this blog and your investments will perform exquisitely: you're guaranteed average with no fees, thus you will out perform almost every professional money manager over a 20 year time horizon.
Just do it.
Exceptions
It's OK to pay reasonable fees for planning and advice, particularly tax advice. Just be sure you ask what they are and understand the costs in $ and %'s. I willingly pay some fees to a broker whom helps Mrs. B learn about investing. A good husband should do that, otherwise, if he gets run over by a truck, his wife will be prey to every shark & gigolo.
Actions
Krypto is buying some Pacific stock index funds this morning. The money will come from cash.
Gold+silver is still just a weak sell - we wait. Real estate is creeping closer to a sell signal (the 5% signal).
Word of the Day
None today - have to take the trash out.
If you want to succeed at long term investing, you must minimize the fees and pay only for value received.
Here's a simple example:
Krypto invests in no fee index funds in accounts with no wrap fees and other fees. Suppose she gets 8% per annum. After 20 years, every $10,000 Krypto invested in the beginning has grown to $46,600.
You invest in funds charging fees in accounts with management fees and pay transaction fees, all together amounting to 2% per year in fees for nearly the same investments. That means your net return is 6% per year. After 20 years, every $10,000 has grown to only $32,070.
Golly, you, a gullible human, end up with about 2/3 of what my dog gets. She's retiring on filet mignon while your get fried mystery meat.
Last Friday I told you how to avoid most fees: Use Vanguard index funds and / or Vanguard ETFs in a Vanguard brokerage account. The fees are as close to zero as possible, or are zero. Just follow the investment lessons of this blog and your investments will perform exquisitely: you're guaranteed average with no fees, thus you will out perform almost every professional money manager over a 20 year time horizon.
Just do it.
Exceptions
It's OK to pay reasonable fees for planning and advice, particularly tax advice. Just be sure you ask what they are and understand the costs in $ and %'s. I willingly pay some fees to a broker whom helps Mrs. B learn about investing. A good husband should do that, otherwise, if he gets run over by a truck, his wife will be prey to every shark & gigolo.
Actions
Krypto is buying some Pacific stock index funds this morning. The money will come from cash.
Gold+silver is still just a weak sell - we wait. Real estate is creeping closer to a sell signal (the 5% signal).
Word of the Day
None today - have to take the trash out.
Tuesday, March 15, 2011
Time Out on a Tuesday
Today I take a break from the investment lessons to write about how Krypto Fund is and will react to event unfolding events in and arising out of the aftermath of the huge earthquake in Japan.
Market participants who read books will likely be reminded of the scenes in that great trading book, Reminiscences of a Stock Operator, when lead character, "Larry Livingston", gets a 'feeling' to short stocks just before the San Francisco earthquake of 1906. When the telegraph stories of the quake appeared, he piled on the shorts, seeing that the reaction of most people would be slow and the true extent of the devastation would take days to come out. Lary Livingston was based on Jesse Livermore, of course, and his prescient shorting before the 1906 quake was legendary.
Krypto did not short, and did not pile on shorts on Friday. She really doesn't trade and doesn't pay that close attention. After, Krypto is a dog, albeit a beautiful and smart dog. But NOW, her model is making noises. This morning it's giving a moderately strong buy signal for Pacific stocks and a moderate sell signal for gold+silver.
Stock futures across the board are plunging, down around 2-3%; Tokyo is down 10% overnight, meaning some prices in the model are rather stale. That moderate buy signal is probably a strong one now. Real estate and fixed income is strong.
I choose to wait until the dust settles. I don't trust the prices and big drops often last three days. Waiting will let me move with the correct, full signal amounts from Krypto Fund.
BUT this is a perfect example of why we sell on the way up .... when all looks rosy. Who knows what the future may bring? Krypto was selling bits of stocks, Pacific included, for months. She has lots of cash, and seems soon to get some good prices for redeployment of that cash.
In today's markets, declines often occur so fast, only a short term trader can act in time and sell; an investor will miss a chance to sell near the top. By the time an investor with a normal life & job reacts, the top is ... a lot closer to the bottom. Those rapid market moves resemble a one way, nonstop elevator ride down.
Word of the Day
"Tropism" - noun [$10]
Tropism means the responsive growth or movement of an organism toward or away from an external stimulus.
Sentence: Although it's a mere computer model, Krypto Fund exhibits dual tropisms, perhaps reflecting the brain behind the model: she leans towards the cheap asset classes and away from the expensive ones.
Market participants who read books will likely be reminded of the scenes in that great trading book, Reminiscences of a Stock Operator, when lead character, "Larry Livingston", gets a 'feeling' to short stocks just before the San Francisco earthquake of 1906. When the telegraph stories of the quake appeared, he piled on the shorts, seeing that the reaction of most people would be slow and the true extent of the devastation would take days to come out. Lary Livingston was based on Jesse Livermore, of course, and his prescient shorting before the 1906 quake was legendary.
Krypto did not short, and did not pile on shorts on Friday. She really doesn't trade and doesn't pay that close attention. After, Krypto is a dog, albeit a beautiful and smart dog. But NOW, her model is making noises. This morning it's giving a moderately strong buy signal for Pacific stocks and a moderate sell signal for gold+silver.
Stock futures across the board are plunging, down around 2-3%; Tokyo is down 10% overnight, meaning some prices in the model are rather stale. That moderate buy signal is probably a strong one now. Real estate and fixed income is strong.
I choose to wait until the dust settles. I don't trust the prices and big drops often last three days. Waiting will let me move with the correct, full signal amounts from Krypto Fund.
BUT this is a perfect example of why we sell on the way up .... when all looks rosy. Who knows what the future may bring? Krypto was selling bits of stocks, Pacific included, for months. She has lots of cash, and seems soon to get some good prices for redeployment of that cash.
In today's markets, declines often occur so fast, only a short term trader can act in time and sell; an investor will miss a chance to sell near the top. By the time an investor with a normal life & job reacts, the top is ... a lot closer to the bottom. Those rapid market moves resemble a one way, nonstop elevator ride down.
Word of the Day
"Tropism" - noun [$10]
Tropism means the responsive growth or movement of an organism toward or away from an external stimulus.
Sentence: Although it's a mere computer model, Krypto Fund exhibits dual tropisms, perhaps reflecting the brain behind the model: she leans towards the cheap asset classes and away from the expensive ones.
Monday, March 14, 2011
Robust Rebalancing Rules
Investment Lesson #4
To maximize your returns and minimize your risks, you MUST rebalance your investment portfolio as needed. Rebalancing prevents any asset class from getting too large or too small; it captures gains from the mindless fluctuations of the markets; and it lowers your risks with countermoves to market volatility.
BUT we do NOT rebalance continuously, every day or week. We wait for the asset classes to get significantly out of line. And we give the classes room in time and price to make significant moves. We also cap certain rebalancing actions. The basic rebalancing rules (#1 and #2) provided below are simple enough, but the exceptions (rules #3-5) are where you need to pay attention.
Rebalancing Rule #1
If an asset class gets more than 5% away from its canonical share of your portfolio, buy or sell (or exchange) enough to put it back in line. Example: US Stocks rise and now US stocks represent 31.5% of your total portfolio value. Sell some index funds or VTI to bring it back to 30%. Buy whatever is low, or if nothing is significantly low, put the money into cash to wait for something to get cheap.
Rebalancing Rule #2
For asset classes that are rising, do this every time the class gets out of line.
Rebalancing Rules #3
For asset classes that are falling, after one 5% rebalancing, wait. The next rebalancing should be done (A) if the asset class gets an additional 10% too small, or (B) after six months if it is just meets the 5% test.
Rebalancing Rule #4
For asset classes that continue to fall, wait. The third and LAST rebalancing should be done (A) is the asset class gets an additional 20% too small, or (B) after one year if it just meets the 5% test.
Rebalancing Rule #5
No more for now, regardless of whether the asset class continues to fall. Three strikes and you sit down and wait at least two years. That asset class might be in a multiyear collapse and bear market like Japan suffered in the later 1980s and early 1990s, or as gold & silver suffered in the early 1980s.
DO NOT KEEP putting money into an asset class that keeps falling - this is a rule required to robustness of the model - to prevent a catastrophic loss of funds. Theoretically, if a market keeps dropping and you do NOT cut off the rebalancing towards it, that falling class will consume all your money, like a black hole consumes everything the gets into its clutches. Stop after three swings and sit down awhile. Let the dust settle.
Summary
These rules provide you simple instructions to buy low, sell high, and sell high, buy low. Think of all those times you hear that prices are low and it's time to buy. If you don't sell something at high prices, you won't have any money to buy when prices are low.
The cut-off rules prevent your portfolio from unduly suffering if one or more asset classes fall too dramatically. Obey them. Don't be a hero ... or a pig.
Actions
I will monitor Krypto Fund closely, the large fall in Japanese stocks might provide a buy signal in my Pacific stocks.
Word of the Day
"Behoove" - verb, transitive [$10] British 'behove' with the 'o' as in no.
Behoove means 1. (preceded by 'it' as subject) (formal) be incumbent upon; 2. (usu. with neg.) befit [it behooves him to protest].
Sentence: For the well being of your investments, it behooves you to pay attention to the above rebalancing rules.
To maximize your returns and minimize your risks, you MUST rebalance your investment portfolio as needed. Rebalancing prevents any asset class from getting too large or too small; it captures gains from the mindless fluctuations of the markets; and it lowers your risks with countermoves to market volatility.
BUT we do NOT rebalance continuously, every day or week. We wait for the asset classes to get significantly out of line. And we give the classes room in time and price to make significant moves. We also cap certain rebalancing actions. The basic rebalancing rules (#1 and #2) provided below are simple enough, but the exceptions (rules #3-5) are where you need to pay attention.
Rebalancing Rule #1
If an asset class gets more than 5% away from its canonical share of your portfolio, buy or sell (or exchange) enough to put it back in line. Example: US Stocks rise and now US stocks represent 31.5% of your total portfolio value. Sell some index funds or VTI to bring it back to 30%. Buy whatever is low, or if nothing is significantly low, put the money into cash to wait for something to get cheap.
Rebalancing Rule #2
For asset classes that are rising, do this every time the class gets out of line.
Rebalancing Rules #3
For asset classes that are falling, after one 5% rebalancing, wait. The next rebalancing should be done (A) if the asset class gets an additional 10% too small, or (B) after six months if it is just meets the 5% test.
Rebalancing Rule #4
For asset classes that continue to fall, wait. The third and LAST rebalancing should be done (A) is the asset class gets an additional 20% too small, or (B) after one year if it just meets the 5% test.
Rebalancing Rule #5
No more for now, regardless of whether the asset class continues to fall. Three strikes and you sit down and wait at least two years. That asset class might be in a multiyear collapse and bear market like Japan suffered in the later 1980s and early 1990s, or as gold & silver suffered in the early 1980s.
DO NOT KEEP putting money into an asset class that keeps falling - this is a rule required to robustness of the model - to prevent a catastrophic loss of funds. Theoretically, if a market keeps dropping and you do NOT cut off the rebalancing towards it, that falling class will consume all your money, like a black hole consumes everything the gets into its clutches. Stop after three swings and sit down awhile. Let the dust settle.
Summary
These rules provide you simple instructions to buy low, sell high, and sell high, buy low. Think of all those times you hear that prices are low and it's time to buy. If you don't sell something at high prices, you won't have any money to buy when prices are low.
Use cash as a buffer if nothing is cheap. Then when an asset class falls in prices, swoop in and scoop up some cheap shares.
The cut-off rules prevent your portfolio from unduly suffering if one or more asset classes fall too dramatically. Obey them. Don't be a hero ... or a pig.
Actions
I will monitor Krypto Fund closely, the large fall in Japanese stocks might provide a buy signal in my Pacific stocks.
Word of the Day
"Behoove" - verb, transitive [$10] British 'behove' with the 'o' as in no.
Behoove means 1. (preceded by 'it' as subject) (formal) be incumbent upon; 2. (usu. with neg.) befit [it behooves him to protest].
Sentence: For the well being of your investments, it behooves you to pay attention to the above rebalancing rules.
Wednesday, March 9, 2011
Use Time in Your Favor
Investment Lesson #3
Time.
Time is your friend.
First, as you leave your money invested for a long period of time, you benefit from compounding: the gains of of one year are reinvested to generate more gains. Here's a simple example - the Rule of 72.
The Rule of 72 is a simple, quick way to estimate how fast your money will double assuming a rate of return AND compounding: divide 72 by the return as a percentage. Suppose you make an investment that will provide 10% returns and you can leave your money invested as long as you wish. Applying the Rule of 72 (72 divided by 10) gives the wonderful result that your money will double in 7.2 years (approximately). Leaving your money invested, your money will have quadrupled in 14.4 years and been multiplied by eight in 28.8 years! Simple, non-compounded returns over those 28.8 years could result in only a return of 288% (28.8 years x 10% per year), but compounding gives you a 700% return (800% less original investment = 700% return). You've done almost 3x better by simply sitting, riding that investment along to more profits.
Second, you need to be patient about putting your money to work. Simply barging into stocks or bonds or gold with all your money at any price or time is a very, very risky move. All those investment asset classes have returns that vary with time: the returns go up or down. One month, the total stock market index VTI might be 66 per share, in a later month it might be 70 or 62. Or the moves can be larger. Ditto for bonds, even US Treasury bonds. Ditto for Gold.
Remember Rule #0: we want to do just average and we want to invest for the long term. If you barge in and put all your savings into stocks, and they go down 10% in a normal fluctuation, you'll feel rather rotten. That pain might make you do something stupid, like pull all your money out & barge into bonds. Of course, interest rates might rise and those bond prices might go down 10%. You feel double rotten. You are now fodder for the Street and the hedge fund piranhas. They are going to whip & drive you emotionally every way and eventually to investment oblivion. Don't play their games.
Assuming you have no special knowledge (a very strongly supported assumption), you will be right 50% of the time. BUT the pain when you are wrong will be larger than the pleasure from being right. That's a fact of human behavior that underlies all economic theory. Almost all human beings are risk averse.
One can prove mathematically that by investing your money over time, in bits over the months and years, will reduce your risk a LOT. I saw this proof at MIT business school years ago; Fischer Black, the famous finance theorist, showed us the proof in class one day. I still remember it. He called it, time diversification. This is another free ride you can take, much like the asset class diversification.
Example: You receive $50,000 from a severance package. Don't put it all into your investments all at once. Put $5,000 a month into them, into whatever is cheap at the time (see rule #4), paying attention to your asset class percentages. You will reduce your risk and increase your chances of doing average.
The same applies to withdrawals, if you can wait. Suppose you know you'll need $50,000 in a year. Take out $5,000 a month from whatever is expensive - high prices, still paying attention to your asset classes.
Be patient. Use time as a tool for yourself. Get all the free benefits of compounding and time diversification. That's how you get the highest returns with the least risk.
Word of the Day
None today. I have to take the recycling out.
Time.
Time is your friend.
First, as you leave your money invested for a long period of time, you benefit from compounding: the gains of of one year are reinvested to generate more gains. Here's a simple example - the Rule of 72.
The Rule of 72 is a simple, quick way to estimate how fast your money will double assuming a rate of return AND compounding: divide 72 by the return as a percentage. Suppose you make an investment that will provide 10% returns and you can leave your money invested as long as you wish. Applying the Rule of 72 (72 divided by 10) gives the wonderful result that your money will double in 7.2 years (approximately). Leaving your money invested, your money will have quadrupled in 14.4 years and been multiplied by eight in 28.8 years! Simple, non-compounded returns over those 28.8 years could result in only a return of 288% (28.8 years x 10% per year), but compounding gives you a 700% return (800% less original investment = 700% return). You've done almost 3x better by simply sitting, riding that investment along to more profits.
Second, you need to be patient about putting your money to work. Simply barging into stocks or bonds or gold with all your money at any price or time is a very, very risky move. All those investment asset classes have returns that vary with time: the returns go up or down. One month, the total stock market index VTI might be 66 per share, in a later month it might be 70 or 62. Or the moves can be larger. Ditto for bonds, even US Treasury bonds. Ditto for Gold.
Remember Rule #0: we want to do just average and we want to invest for the long term. If you barge in and put all your savings into stocks, and they go down 10% in a normal fluctuation, you'll feel rather rotten. That pain might make you do something stupid, like pull all your money out & barge into bonds. Of course, interest rates might rise and those bond prices might go down 10%. You feel double rotten. You are now fodder for the Street and the hedge fund piranhas. They are going to whip & drive you emotionally every way and eventually to investment oblivion. Don't play their games.
Assuming you have no special knowledge (a very strongly supported assumption), you will be right 50% of the time. BUT the pain when you are wrong will be larger than the pleasure from being right. That's a fact of human behavior that underlies all economic theory. Almost all human beings are risk averse.
One can prove mathematically that by investing your money over time, in bits over the months and years, will reduce your risk a LOT. I saw this proof at MIT business school years ago; Fischer Black, the famous finance theorist, showed us the proof in class one day. I still remember it. He called it, time diversification. This is another free ride you can take, much like the asset class diversification.
Example: You receive $50,000 from a severance package. Don't put it all into your investments all at once. Put $5,000 a month into them, into whatever is cheap at the time (see rule #4), paying attention to your asset class percentages. You will reduce your risk and increase your chances of doing average.
The same applies to withdrawals, if you can wait. Suppose you know you'll need $50,000 in a year. Take out $5,000 a month from whatever is expensive - high prices, still paying attention to your asset classes.
Be patient. Use time as a tool for yourself. Get all the free benefits of compounding and time diversification. That's how you get the highest returns with the least risk.
Word of the Day
None today. I have to take the recycling out.
Tuesday, March 8, 2011
How to Do It
Investment Lesson #2
Yesterday in Lesson #0, I explained the Why - why I invest in the style of the Krypto Fund. And on Friday in Lesson #1 I listed the seven assets classes I use (really nine as one class has three parts).
Today we get specific. The How and the What. We stick to the K. I. S. S. method. [Taxes will complicate it a bit, but not excessively.]
All the investments are made in The Vanguard Group's index mutual funds and their exchange traded funds (ETFs). Those have the lowest fees. Our objective, remember, is to get average performance with almost no fees. That guarantees us excellent returns long term as we ride (for free!) the great bull elephant of world economic growth.
The minimum brokerage account at Vanguard is $3,000. In it, you can invest in Vanguard ETFs for free - no commissions. The annual fee is a mere $20. Those Vanguard ETFs have the lowest fees of all ETFs, and they are indexes - no human intervention to cause risk & losses. You can also invest in the Vanguard index mutual funds there for no fees; their management fees are the lowest and their service is excellent. You can electronically connect the accounts to your savings or checking account, enabling you to add or withdraw money quickly and easily. It's a fine deal for the common man and woman.
Cash: use Prime Portfolio
Treasury Inflation Protected securities - use the Inflation Protected Securities Fund.
Fixed Income - use the Total Bond Market Index Fund or the Long Term Treasury Fund.
US Stocks - use the Total Stock Market Index Fund - the ETF has the ticker, VTI.
Foreign Stocks - (a) 1/3 goes to the Pacific Stock Index Fund; (b) 1/3 goes to the European Stock Index Fund; (c) 1/3 goes to the Emerging Markets Stock Index Fund. The respective ETF tickers are VPL, VGK and VWO.
Real Estate - use the REIT Index Fund (REIT = Real Estate Investment Trust). The ETF ticker is VNQ.
Gold & Silver - Use the Vanguard Precious Metals Funds and/or the non-Vanguard ETFs, GLD and SLV that hold physical gold & silver at low cost. That Vanguard fund is not an index fund, but it invests in gold & silver mining stocks. I personally use a mixture of all three of these investment vehicles to invest in gold & silver.
That's it. Simple. Seven asset classes, nine if you count the three parts of the Foreign stock group.
What have we accomplished with these seven classes?
Notice that four classes are rather sensitive to inflation: Cash, TIPs, Real estate and gold/silver. In times of inflation, those classes have provided much protection at different times. For example in the 1970s prolonged high inflation environment, cash (i. e. money market funds) provided high yields, real estate boomed as did gold & silver. Now we have TIPs, too. Krypto Fund have much inflation protection.
For income we have the fixed income, the dividends on the US stocks and the REITs, and the income from the TIPs.
For growth, we have the US stocks, foreign stocks and the real estate. The
For Doomsday, we have the gold & silver and the cash.
These are the components of a well-diversified portfolio of investments - the Seven Pillars of investment.
How much do you put into each class? The depends on YOU - your risk characteristics: your How, What and When. How old are you? What is your future earnings outlook? When will you need the money?
Here are the canonical percentages to invest in each class. These are the baseline amounts, which you tweak (that's MIT-techie-speak for 'adjust') based on your own how, what and when:
0% cash
10% TIPs
15% Fixed Income
30% US Stocks
25% Foreign stocks (1/3 in each part)
15% REITs
5% Gold.
Make adjustments based on our age and future earnings and need to draw on the funds. But don't adjust them too much, except in extreme circumstances.
Why does cash get 0%? Because we will mostly use cash as a buffer - the place to put money when nothing is cheap and most other classes are expensive. And we use cash as a buffer to put some money that we will need to draw out over time as we need to use the money. Cash also connects your long term investments to your bank checking or savings account; it's the link bewteen your Krypto Fund and your daily operating life. You need that link.
That's it. Simple.
Taxes will complicate the matter, but those for another post.
Word of the Day
"Expatiate" - verb, intransitive [$10]
Expatiate means (usu followed by 'on', 'upon') speak or write at length or in detail.
Sentence: As Bunkerman expatiates on long term investing in this series of posts, you should try to absorb and read re-read each one each day to learn. If you have questions, grasshopper ;) you can post them in the comments (or call me if you know my phone number or email me if you know one of my emails.)
Yesterday in Lesson #0, I explained the Why - why I invest in the style of the Krypto Fund. And on Friday in Lesson #1 I listed the seven assets classes I use (really nine as one class has three parts).
Today we get specific. The How and the What. We stick to the K. I. S. S. method. [Taxes will complicate it a bit, but not excessively.]
All the investments are made in The Vanguard Group's index mutual funds and their exchange traded funds (ETFs). Those have the lowest fees. Our objective, remember, is to get average performance with almost no fees. That guarantees us excellent returns long term as we ride (for free!) the great bull elephant of world economic growth.
The minimum brokerage account at Vanguard is $3,000. In it, you can invest in Vanguard ETFs for free - no commissions. The annual fee is a mere $20. Those Vanguard ETFs have the lowest fees of all ETFs, and they are indexes - no human intervention to cause risk & losses. You can also invest in the Vanguard index mutual funds there for no fees; their management fees are the lowest and their service is excellent. You can electronically connect the accounts to your savings or checking account, enabling you to add or withdraw money quickly and easily. It's a fine deal for the common man and woman.
Cash: use Prime Portfolio
Treasury Inflation Protected securities - use the Inflation Protected Securities Fund.
Fixed Income - use the Total Bond Market Index Fund or the Long Term Treasury Fund.
US Stocks - use the Total Stock Market Index Fund - the ETF has the ticker, VTI.
Foreign Stocks - (a) 1/3 goes to the Pacific Stock Index Fund; (b) 1/3 goes to the European Stock Index Fund; (c) 1/3 goes to the Emerging Markets Stock Index Fund. The respective ETF tickers are VPL, VGK and VWO.
Real Estate - use the REIT Index Fund (REIT = Real Estate Investment Trust). The ETF ticker is VNQ.
Gold & Silver - Use the Vanguard Precious Metals Funds and/or the non-Vanguard ETFs, GLD and SLV that hold physical gold & silver at low cost. That Vanguard fund is not an index fund, but it invests in gold & silver mining stocks. I personally use a mixture of all three of these investment vehicles to invest in gold & silver.
That's it. Simple. Seven asset classes, nine if you count the three parts of the Foreign stock group.
What have we accomplished with these seven classes?
Notice that four classes are rather sensitive to inflation: Cash, TIPs, Real estate and gold/silver. In times of inflation, those classes have provided much protection at different times. For example in the 1970s prolonged high inflation environment, cash (i. e. money market funds) provided high yields, real estate boomed as did gold & silver. Now we have TIPs, too. Krypto Fund have much inflation protection.
For income we have the fixed income, the dividends on the US stocks and the REITs, and the income from the TIPs.
For growth, we have the US stocks, foreign stocks and the real estate. The
For Doomsday, we have the gold & silver and the cash.
These are the components of a well-diversified portfolio of investments - the Seven Pillars of investment.
How much do you put into each class? The depends on YOU - your risk characteristics: your How, What and When. How old are you? What is your future earnings outlook? When will you need the money?
Here are the canonical percentages to invest in each class. These are the baseline amounts, which you tweak (that's MIT-techie-speak for 'adjust') based on your own how, what and when:
0% cash
10% TIPs
15% Fixed Income
30% US Stocks
25% Foreign stocks (1/3 in each part)
15% REITs
5% Gold.
Make adjustments based on our age and future earnings and need to draw on the funds. But don't adjust them too much, except in extreme circumstances.
Why does cash get 0%? Because we will mostly use cash as a buffer - the place to put money when nothing is cheap and most other classes are expensive. And we use cash as a buffer to put some money that we will need to draw out over time as we need to use the money. Cash also connects your long term investments to your bank checking or savings account; it's the link bewteen your Krypto Fund and your daily operating life. You need that link.
That's it. Simple.
Taxes will complicate the matter, but those for another post.
Word of the Day
"Expatiate" - verb, intransitive [$10]
Expatiate means (usu followed by 'on', 'upon') speak or write at length or in detail.
Sentence: As Bunkerman expatiates on long term investing in this series of posts, you should try to absorb and read re-read each one each day to learn. If you have questions, grasshopper ;) you can post them in the comments (or call me if you know my phone number or email me if you know one of my emails.)
Monday, March 7, 2011
K. I. S. S.
Keep it simple, stupid.
I'm talking to myself here, not you. This is why I invest long term according to the Krypto Fund methods. I don't want to spend my life looking for stocks, commodities or anything. I've done that and it's a lot of work - very, very difficult work. I can make good money in that line of WORK, but unless one needs to, why do it? Life is too short.
Now about YOU. Most of you have a job and a family and plenty of responsibilities. Do you want to spend all your free time investigating investments? I think not. Besides, it's very, very hard to find winners. Here's why: There are about 7,000 stocks; even more bonds. There are about 7,000 mutual funds. And for the rich, there are about 7,000 hedge funds. If YOU want to pick your own investments, you have to find the few winners in that huge pool. Tough job. Your competition is lots of very smart, driven, informed, experience investment managers. You haven't got a chance. They will eat you alive.
Can you find a good advisor to help you? Maybe. Or maybe not. Again, you face a crap shot. And you'll pay plenty.
BUT the modern investment world has given you marvelous tools, a way to virtually guarantee a good - nay, excellent - long term investment perfomance. Those tools are index funds and diversification. ALL studies of investment performance show that almost all investment managers and mutual funds underperform the AVERAGE over a 20 year time horizon. How can that be? Fees. Consider a 1% annual fee. After 20 years, you've paid 20% of your money to the manager. That's a huge amount. Analogy: 1% is about the house take on even good bets on the crap table in Vegas and is about the house take on good play at blackjack. But the house always wins.
You can win in long term investing. You can avoid almost all the fees and ride long term growth in the world economy; it's virtually a free ride.
You can reduce risks even more. The world is a big place. Some places do well when others are stagnant. Sometimes there is inflation, sometimes not. The returns on investments vary over time and place. The tool of cheap diversification gives you an edge. Careful studies of investment markets over decades have PROVEN that diversification gives superior returns for any given risk level. There are two types of diversification: asset type and time. You can use these tools of the modern investment to give yourself SUPERIOR returns for long term investments for FREE.
Be a smart investor - it's easy. My dog, Krypto, can do it.
Here's what to do.
Don't worry about those thousands of stocks or mutual funds. Just pay attention to SEVEN asset classes (really NINE as one has three parts). NINE asset classes are easy to follow; you can do it once a week on Saturday morning. A baseball team has as many players. Don't pay attention to all the details and the blather of the pundits. Watch those NINE.
Invest in them in the lowest cost manner possible: index funds. The cheapest index funds are from The Vanguard Group. You don't even pay a management fee, since the management company is owned by the funds themselves. Those funds are huge, some of the largest in the world. Your economies of scale are fabulous. You can get the free ride.
And you have to construct your investments so you can maintain your diversification cheaply. You must be able to cheaply allocate your money among those important asset classes. You can do that at The Vanguard Group. I've used them for 30 years now. They provide excellent service and quality and cater to the common man and woman.
This post is #0 on my list given Friday, explaining why I do what what I do. Krypto Fund has beaten almost all big mouth investment advisors for years at low risk. Krypto Fund has ridden the 2000 tech bubble and the Panic of 2008. Even though the stock market is about 20% off its all-time highs of 2007, Krypto Fund is well over its all time high.
Krypto Fund follows the rules I listed in Friday's post. On Friday I listed the seven / nine important asset classes. Tomorrow I will tell you how to invest in them with specificity. All for free.
Ride the elephant, don't get trampled or stomped.
PS: Use this method for most of your long term investment money. If you want to make a small investment in some stock or company or whatever, go ahead (after good research). But keep it small at first. Maybe you'll get lucky. But if you keep it small at first, you won't be hurt if it craters.
Word of the Day
"Apotropaic" - adjective [$10]
Apotropaic means supposedly having the power to avert an evil influence or bad luck.
Sentence: The Krypto Fund method of long term investing needs no apotropaic charms. The free tools of the modern investment world give it all the edge it needs: diversification and cheap index funds.
I'm talking to myself here, not you. This is why I invest long term according to the Krypto Fund methods. I don't want to spend my life looking for stocks, commodities or anything. I've done that and it's a lot of work - very, very difficult work. I can make good money in that line of WORK, but unless one needs to, why do it? Life is too short.
Now about YOU. Most of you have a job and a family and plenty of responsibilities. Do you want to spend all your free time investigating investments? I think not. Besides, it's very, very hard to find winners. Here's why: There are about 7,000 stocks; even more bonds. There are about 7,000 mutual funds. And for the rich, there are about 7,000 hedge funds. If YOU want to pick your own investments, you have to find the few winners in that huge pool. Tough job. Your competition is lots of very smart, driven, informed, experience investment managers. You haven't got a chance. They will eat you alive.
Can you find a good advisor to help you? Maybe. Or maybe not. Again, you face a crap shot. And you'll pay plenty.
BUT the modern investment world has given you marvelous tools, a way to virtually guarantee a good - nay, excellent - long term investment perfomance. Those tools are index funds and diversification. ALL studies of investment performance show that almost all investment managers and mutual funds underperform the AVERAGE over a 20 year time horizon. How can that be? Fees. Consider a 1% annual fee. After 20 years, you've paid 20% of your money to the manager. That's a huge amount. Analogy: 1% is about the house take on even good bets on the crap table in Vegas and is about the house take on good play at blackjack. But the house always wins.
You can win in long term investing. You can avoid almost all the fees and ride long term growth in the world economy; it's virtually a free ride.
You can reduce risks even more. The world is a big place. Some places do well when others are stagnant. Sometimes there is inflation, sometimes not. The returns on investments vary over time and place. The tool of cheap diversification gives you an edge. Careful studies of investment markets over decades have PROVEN that diversification gives superior returns for any given risk level. There are two types of diversification: asset type and time. You can use these tools of the modern investment to give yourself SUPERIOR returns for long term investments for FREE.
Be a smart investor - it's easy. My dog, Krypto, can do it.
Here's what to do.
Don't worry about those thousands of stocks or mutual funds. Just pay attention to SEVEN asset classes (really NINE as one has three parts). NINE asset classes are easy to follow; you can do it once a week on Saturday morning. A baseball team has as many players. Don't pay attention to all the details and the blather of the pundits. Watch those NINE.
Invest in them in the lowest cost manner possible: index funds. The cheapest index funds are from The Vanguard Group. You don't even pay a management fee, since the management company is owned by the funds themselves. Those funds are huge, some of the largest in the world. Your economies of scale are fabulous. You can get the free ride.
And you have to construct your investments so you can maintain your diversification cheaply. You must be able to cheaply allocate your money among those important asset classes. You can do that at The Vanguard Group. I've used them for 30 years now. They provide excellent service and quality and cater to the common man and woman.
This post is #0 on my list given Friday, explaining why I do what what I do. Krypto Fund has beaten almost all big mouth investment advisors for years at low risk. Krypto Fund has ridden the 2000 tech bubble and the Panic of 2008. Even though the stock market is about 20% off its all-time highs of 2007, Krypto Fund is well over its all time high.
Krypto Fund follows the rules I listed in Friday's post. On Friday I listed the seven / nine important asset classes. Tomorrow I will tell you how to invest in them with specificity. All for free.
Ride the elephant, don't get trampled or stomped.
PS: Use this method for most of your long term investment money. If you want to make a small investment in some stock or company or whatever, go ahead (after good research). But keep it small at first. Maybe you'll get lucky. But if you keep it small at first, you won't be hurt if it craters.
Word of the Day
"Apotropaic" - adjective [$10]
Apotropaic means supposedly having the power to avert an evil influence or bad luck.
Sentence: The Krypto Fund method of long term investing needs no apotropaic charms. The free tools of the modern investment world give it all the edge it needs: diversification and cheap index funds.
Friday, March 4, 2011
The Friday Fade
I'm tired. It's cold. Nothing is happening.
Ms. Market is dancing on the table again after a brief rest. Krypto has no new orders, but she seems to be getting ready to sell some European stocks (which are up a bit as the Euro rallies). She's also getting ready to sell some RE stocks. Taken together, the sell signals are strong enough, but that's not how the Krypto Fund works. She buys and / or sells on an individual asset class basis. We wait for higher prices and will monitor the numbers more often.
The unemployment claims numbers showed strong improvement. Let's see the jobs numbers today. Despite the inflation screechers who want to crucify the American worker on a cross of green (or gold), Battleship Ben's quantitative easing program has and is producing good results since it was announced last August. Job losses had fallen, job growth is better (but still lousy), and fear of a double dip recession vaporized under his heavy shelling. Keep it up, Ben. Fire away!!!
Investment Lessons
First, notice that headline is Investment lessons, not trading lessons. The time horizon is years, not months or days or minutes.
Second, this is what I DO, not just what I SAY. Krypto Fund contains the majority of my net worth and these writings explain how I manage it - my own money. The Krypto Fund produced good long term results over the decades, including riding out the tidal waves of the Panic of 2008 and the 2000 Tech bubble. I have learned over the years not to second guess Krypto - the personification of my fund computer model that embodies my investment rules. Or is that dogification? Krypto is one of my dogs; she will lief* work for dog biscuits. [*Word of the Day]
Third, the objective is to do a wee bit better than average for the long term. Average is really very, very good. Most people's investment returns are way below average. They are the fodder for the Wall Street and Hedge Fund hogs. Be a winner, not a loser.
Principles
1. Manage a portfolio of the seven major asset classes.
2. Diversify across the asset classes.
3. Add / remove funds using time diversification.
4. Buy low, sell high; sell high, buy low.
5. Minimize fees.
6. Minimize taxes.
7. Obey the machine.
Rule #1 - Implementation.
There are seven major asset classes for the individual to use; one asset class has three parts.
1. Cash (aka money market funds or savings accounts)
2. TIPs aka Treasury Inflation Protected securities
3. Fixed income - bonds of various types.
4. US Stocks
5. Foreign stocks (three parts: Europe, Pacific and Emerging Markets)
6. Real estate
7, Gold & silver and precious metal stock funds
That's enough for now. More next week.
Word of the Day
"Lief" - adverb [$10] archaic; appears often in Shakespeare, but also was common in the Irish dialect of the common people in the 1907 play of J. M. Synge, Playboy of the Western World .
Lief means gladly, willingly (usu. had lief, would lief)
Sentence: To paraphase Wimpy of the Popeye cartoons, Krypto would lief manage the fund next neek for a dog biscuit today.
Shakespeare, As You Like It, Act IV, scene I, Rosalind to Orlando:
Nay, an you be so tardy, come no more
in my sight: I had as lief be wooed
of a snail.
Ms. Market is dancing on the table again after a brief rest. Krypto has no new orders, but she seems to be getting ready to sell some European stocks (which are up a bit as the Euro rallies). She's also getting ready to sell some RE stocks. Taken together, the sell signals are strong enough, but that's not how the Krypto Fund works. She buys and / or sells on an individual asset class basis. We wait for higher prices and will monitor the numbers more often.
The unemployment claims numbers showed strong improvement. Let's see the jobs numbers today. Despite the inflation screechers who want to crucify the American worker on a cross of green (or gold), Battleship Ben's quantitative easing program has and is producing good results since it was announced last August. Job losses had fallen, job growth is better (but still lousy), and fear of a double dip recession vaporized under his heavy shelling. Keep it up, Ben. Fire away!!!
Investment Lessons
First, notice that headline is Investment lessons, not trading lessons. The time horizon is years, not months or days or minutes.
Second, this is what I DO, not just what I SAY. Krypto Fund contains the majority of my net worth and these writings explain how I manage it - my own money. The Krypto Fund produced good long term results over the decades, including riding out the tidal waves of the Panic of 2008 and the 2000 Tech bubble. I have learned over the years not to second guess Krypto - the personification of my fund computer model that embodies my investment rules. Or is that dogification? Krypto is one of my dogs; she will lief* work for dog biscuits. [*Word of the Day]
Third, the objective is to do a wee bit better than average for the long term. Average is really very, very good. Most people's investment returns are way below average. They are the fodder for the Wall Street and Hedge Fund hogs. Be a winner, not a loser.
Principles
1. Manage a portfolio of the seven major asset classes.
2. Diversify across the asset classes.
3. Add / remove funds using time diversification.
4. Buy low, sell high; sell high, buy low.
5. Minimize fees.
6. Minimize taxes.
7. Obey the machine.
Rule #1 - Implementation.
There are seven major asset classes for the individual to use; one asset class has three parts.
1. Cash (aka money market funds or savings accounts)
2. TIPs aka Treasury Inflation Protected securities
3. Fixed income - bonds of various types.
4. US Stocks
5. Foreign stocks (three parts: Europe, Pacific and Emerging Markets)
6. Real estate
7, Gold & silver and precious metal stock funds
That's enough for now. More next week.
Word of the Day
"Lief" - adverb [$10] archaic; appears often in Shakespeare, but also was common in the Irish dialect of the common people in the 1907 play of J. M. Synge, Playboy of the Western World .
Lief means gladly, willingly (usu. had lief, would lief)
Sentence: To paraphase Wimpy of the Popeye cartoons, Krypto would lief manage the fund next neek for a dog biscuit today.
Shakespeare, As You Like It, Act IV, scene I, Rosalind to Orlando:
Nay, an you be so tardy, come no more
in my sight: I had as lief be wooed
of a snail.
Tuesday, January 18, 2011
I Have a Dream
Of course that's Martin Luther King's famous speech line. I'm borrowing it today to post my "dream" about where Ms. Market will take us this year. Will she dance on that tables & party, or dump us?
Stocks (S&P 500): high - 1500, low 1200, close 1500.
Bonds: (US 10 year yield): high 4.5%, low 3.3%, close 4.5%
TIPs (the ETF): high 108, low 104, close 104
Gold: high 1500, low 1200, close 1500
Muni bonds: solid A-AA yields rise to 5.5%
From where we are now in these asset classes, the "buy low, sell high" and "sell high, buy low" tactics will pay off well.
Timing: Ms. Market will dance and party a bit, then take a break, then hit the dance floors again.
Hedge funds will have a poor year as the commodity trades will sour, providing little upside and much pain from drops and sideways action. Favorites like AAPL will be sideways. Winnings will be boring stocks like those in the DJIA - big cap blue chips. Big banks will sputter as regulations grind profits away.
Krypto anticipates a fine year and is drooling over those dog biscuits.
Bman will keep riding this bull elephant, but pick fruit off the trees as he passes good trades. The ending waterhole is not yet in sight.
Word of the Day
"Progenerate" - verb [$1000] Obsolete, rare; a T. S. Eliot word
Progenerate means to beget, propagate, procreate.
Sentence: After due exercise of my little grey cells towards the likely path for the various major asset classes for 2011, Bunkerman today progenerated the outcomes that he now believes the near future will bring. Will be a hero or a goat? Time will tell. The future is not determined, but is (mostly) controlled by men riding along the waves of our world in time and space.
Stocks (S&P 500): high - 1500, low 1200, close 1500.
Bonds: (US 10 year yield): high 4.5%, low 3.3%, close 4.5%
TIPs (the ETF): high 108, low 104, close 104
Gold: high 1500, low 1200, close 1500
Muni bonds: solid A-AA yields rise to 5.5%
From where we are now in these asset classes, the "buy low, sell high" and "sell high, buy low" tactics will pay off well.
Timing: Ms. Market will dance and party a bit, then take a break, then hit the dance floors again.
Hedge funds will have a poor year as the commodity trades will sour, providing little upside and much pain from drops and sideways action. Favorites like AAPL will be sideways. Winnings will be boring stocks like those in the DJIA - big cap blue chips. Big banks will sputter as regulations grind profits away.
Krypto anticipates a fine year and is drooling over those dog biscuits.
Bman will keep riding this bull elephant, but pick fruit off the trees as he passes good trades. The ending waterhole is not yet in sight.
Word of the Day
"Progenerate" - verb [$1000] Obsolete, rare; a T. S. Eliot word
Progenerate means to beget, propagate, procreate.
Sentence: After due exercise of my little grey cells towards the likely path for the various major asset classes for 2011, Bunkerman today progenerated the outcomes that he now believes the near future will bring. Will be a hero or a goat? Time will tell. The future is not determined, but is (mostly) controlled by men riding along the waves of our world in time and space.
Monday, November 22, 2010
Long Term Investing
The Krypto Fund is the name that I use for all our long term investments: IRAs, 401Ks, and all long term, taxable accounts. On February 10, 2007 I first described how it is managed in this blog, and have written about its style a few other times. From recent comments, obviously I need to repeat and update this management style.
For 2010, the Krypto Fund is up about 12% year-to-date - pretty good compared to the averages & hedge fund averages. Krypto Fund contains almost all index funds in different asset classes. I use canonical allocation percentages and manage around those benchmarks. I do adjust them as I age.
The canonical allocations NOW are this:
25% US stocks,
20% foreign stocks,
15% real estate funds,
25% fixed income bonds,
5% inflation-protected bonds,
5% gold & silver,
5% cash.
Since I think inflation protected bonds and fixed income bonds are greatly overvalued in bubble regions, the actual allocations NOW are 20% fixed income bonds, 0% inflation protected bonds and 15% cash with other asset classes at canonical percentages.
I use a spreadsheet to compute the asset class %'s, usually weekly based on Friday's prices.
US stock funds are Vanguard Total Market Fund, the corresponding exchange traded fund (ticker VTI), or the CREF Stock Account. [Mrs. Bunkerman was a scientist, so her retirement savings from work went to TIAA-CREF funds. Their "Stock Account" has some foreign stocks, so I reallocate these in the spreadsheet based on annual percentage components].
Foreign stocks are Vanguard Pacific Index, European Index and Emerging Markets Index Funds (& corresponding ETFs) - I allocate 1/3 of the total foreign stocks component to each, hence these are really 6.66% of total Krypto Fund each. Included here for total asset class calculations are the re-allocated CREF foreign stock amounts in correct proportions.
The real estate asset class is the Vanguard Real Estate Index Fund and the TIAA-CREF Real Estate Fund.
The fixed income bonds are the Vanguard Total Bond Market Index, various Long term municipal bonds, the TIAA traditional fixed income account, and the cash value of an old whole life insurance policy.
The inflation-protected bonds are Vanguard or TIAA-CREF inflation-protected bond funds, as appropriate.
Gold & silver are mostly American Eagle gold coins and silver bullion bars, plus ETFs for gold & silver (tickers are GLD and SLV, respectively), and the Vanguard Precious Metals Fund.
The Vanguard Real Estate Index Fund invests in REIT stocks, by the way, while the TIAA-CREF Real Estate Fund invests in actual buildings, etc., so they perform somewhat differently. Both are a bit leveraged, so I keep that asset class at 15%, rather than the 20% which would be appropriate for unleveraged real estate.
The spreadsheet computes the % size of each asset class each week. IF an asset class is more than 5% off its target percentage, I look to reallocate some funds to top it off if it's low or take some out if it's too large. For example, if the US stocks are over 26.25% of the total Krypto Fund, that's 5% off the target 25%. So I look to see what's low & move the excess 1.25% to other asset classes. One has to consider fund restrictions and taxes for frequent moves, but since we have multiple accounts, I have always been able to figure out a way to reallocate. See David Swenson's great book, "Unconventional Success" for a description of why this type of personal investing works well.
I have done long-term investing along this strategy for over 20 years. When I read his book, I was happy to see he agreed with me (joke haha) and I learned about the value of the inflation-protected bonds. So I added that asset class. I also recently became more aware of the leveraged in the real estate classes, so cut it back. I'm not perfect and continue to make changes as I see a need.
I also adjusted my rebalancing trigger to 5% from 10%, as I realized from his book I had been missing many good re-balancing opportunities with a 10% trigger. My percentages were pretty close to his, otherwise. Also, I have some gold & silver for many reasons.
On down moves, I make the re-allocations on the first 5%, BUT if another 5% adjustment is called for because of a down move, I wait awhile. Down moves can be fast & furious, and it's better to let the dust settle. This helped me alot in 2008 and 2009 to get more buying of stocks closer to the lows. In addition, for stocks, once the indices hit intermediate term highs, I make adjustments in them more frequently to keep the %'s close to canonical levels. This "buy-low, sell-high" and "sell high, buy low" intermediate term trading tactic lowers volatility and increases returns to help me stay fully invested at all times.
If some asset class is low, BUT is greatly overvalued, I put sale proceeds into cash as a buffer. Then when the low class readjusts to a more fair valuation, I buy it. This is the case with fixed income bonds and inflation-protected bonds now.
I love that name, The Krypto Fund. I like to think my dog, Krypto, pushes the computer key every week to do the reallocation. She accepts dog biscuits as payment. :-)
This investment methods works well: the Krypto Fund is at all time highs, even though the US stock market is almost 20% below its all time high. That buy-low, sell high and sell high, buy low asset allocation tactic worked well through the Panic of 2008 and the lows of 2009.
Word of the Day
"Quotidian" - adjective [$10]
Quotidian means something occurring daily.
Sentence: Krypto Fund rebalancing is NOT quotidian; I check it weekly, but often a month or more can pass before a change is made.
For 2010, the Krypto Fund is up about 12% year-to-date - pretty good compared to the averages & hedge fund averages. Krypto Fund contains almost all index funds in different asset classes. I use canonical allocation percentages and manage around those benchmarks. I do adjust them as I age.
The canonical allocations NOW are this:
25% US stocks,
20% foreign stocks,
15% real estate funds,
25% fixed income bonds,
5% inflation-protected bonds,
5% gold & silver,
5% cash.
Since I think inflation protected bonds and fixed income bonds are greatly overvalued in bubble regions, the actual allocations NOW are 20% fixed income bonds, 0% inflation protected bonds and 15% cash with other asset classes at canonical percentages.
I use a spreadsheet to compute the asset class %'s, usually weekly based on Friday's prices.
US stock funds are Vanguard Total Market Fund, the corresponding exchange traded fund (ticker VTI), or the CREF Stock Account. [Mrs. Bunkerman was a scientist, so her retirement savings from work went to TIAA-CREF funds. Their "Stock Account" has some foreign stocks, so I reallocate these in the spreadsheet based on annual percentage components].
Foreign stocks are Vanguard Pacific Index, European Index and Emerging Markets Index Funds (& corresponding ETFs) - I allocate 1/3 of the total foreign stocks component to each, hence these are really 6.66% of total Krypto Fund each. Included here for total asset class calculations are the re-allocated CREF foreign stock amounts in correct proportions.
The real estate asset class is the Vanguard Real Estate Index Fund and the TIAA-CREF Real Estate Fund.
The fixed income bonds are the Vanguard Total Bond Market Index, various Long term municipal bonds, the TIAA traditional fixed income account, and the cash value of an old whole life insurance policy.
The inflation-protected bonds are Vanguard or TIAA-CREF inflation-protected bond funds, as appropriate.
Gold & silver are mostly American Eagle gold coins and silver bullion bars, plus ETFs for gold & silver (tickers are GLD and SLV, respectively), and the Vanguard Precious Metals Fund.
The Vanguard Real Estate Index Fund invests in REIT stocks, by the way, while the TIAA-CREF Real Estate Fund invests in actual buildings, etc., so they perform somewhat differently. Both are a bit leveraged, so I keep that asset class at 15%, rather than the 20% which would be appropriate for unleveraged real estate.
The spreadsheet computes the % size of each asset class each week. IF an asset class is more than 5% off its target percentage, I look to reallocate some funds to top it off if it's low or take some out if it's too large. For example, if the US stocks are over 26.25% of the total Krypto Fund, that's 5% off the target 25%. So I look to see what's low & move the excess 1.25% to other asset classes. One has to consider fund restrictions and taxes for frequent moves, but since we have multiple accounts, I have always been able to figure out a way to reallocate. See David Swenson's great book, "Unconventional Success" for a description of why this type of personal investing works well.
I have done long-term investing along this strategy for over 20 years. When I read his book, I was happy to see he agreed with me (joke haha) and I learned about the value of the inflation-protected bonds. So I added that asset class. I also recently became more aware of the leveraged in the real estate classes, so cut it back. I'm not perfect and continue to make changes as I see a need.
I also adjusted my rebalancing trigger to 5% from 10%, as I realized from his book I had been missing many good re-balancing opportunities with a 10% trigger. My percentages were pretty close to his, otherwise. Also, I have some gold & silver for many reasons.
On down moves, I make the re-allocations on the first 5%, BUT if another 5% adjustment is called for because of a down move, I wait awhile. Down moves can be fast & furious, and it's better to let the dust settle. This helped me alot in 2008 and 2009 to get more buying of stocks closer to the lows. In addition, for stocks, once the indices hit intermediate term highs, I make adjustments in them more frequently to keep the %'s close to canonical levels. This "buy-low, sell-high" and "sell high, buy low" intermediate term trading tactic lowers volatility and increases returns to help me stay fully invested at all times.
If some asset class is low, BUT is greatly overvalued, I put sale proceeds into cash as a buffer. Then when the low class readjusts to a more fair valuation, I buy it. This is the case with fixed income bonds and inflation-protected bonds now.
I love that name, The Krypto Fund. I like to think my dog, Krypto, pushes the computer key every week to do the reallocation. She accepts dog biscuits as payment. :-)
This investment methods works well: the Krypto Fund is at all time highs, even though the US stock market is almost 20% below its all time high. That buy-low, sell high and sell high, buy low asset allocation tactic worked well through the Panic of 2008 and the lows of 2009.
Word of the Day
"Quotidian" - adjective [$10]
Quotidian means something occurring daily.
Sentence: Krypto Fund rebalancing is NOT quotidian; I check it weekly, but often a month or more can pass before a change is made.
Friday, December 4, 2009
TGIF and some moves
A long week is almost over, and 2009 has just a bit under one month left. Krypto checked her Fund yesterday and as much easy money has been made, Krypto hit the button on the computer to re-allocate. Good doggie ... here's your fee, a fine dog biscuit.
Krypto sold quite a bit of gold (the ETF - GLD), gold stocks, REIT index fund ETF (VNQ), and emerging market ETF (VWO) and the sister index fund. Overall this was about 3.5% of Krypto Fund holdings which were moved to money market funds. All the monies were in retirement accounts, hence no tax affects. TIPS and bonds (except certain municipal bonds) do not seem like good buys to me now, so I'll wait, probably a year until the Fed starts to raise rates. If the stock markets pull back, I can re-buy at lower prices. Patience, grasshopper ....
The speculative 1-2-3 Fund is mostly cash now, too, as all the S&P calls were sold earlier this week as posted. I have some MT stock, MT calls, HBC calls, BA calls and some RIMM, CX and VVUS. I expect a good jobs numbers and will likely take all sugar on all options on any ramp after the number - IF I'm right.
On a push towards S&P 1200, I will look for short plays. My first stop will be any market leaders that fail to make new recovery highs. Second will be whatever sectors I think might be over-extended and ready for a drop. I think the beefers are already distributing stocks like AAPL, GS, etc. They will pull the trigger on all their holdings before year end IF their management fees seem in danger.
I don't expect a big pullback unless something bad happens, like Obama passing his cluster FUBAR health plan. IF that passes, job stagnation will rule for a decade or more.
Yesterday's late selloff had two possible causes: (1) GS put out a negative forecast for this AM's job number to select clients (GS does this the day before the number recently), or (2) general big cap selling by institutions raising funds to buy the BAC offering. Or both.
That BAC offering was something called "Common Equivalent Securities" - CES for short. I suppose they came from some investment banking firm's CESspool. What a bunch of s&^% ! If you want to sell stock, sell stock. Only a fool hasn't learned that complexity is costly and dangerous. Of course, BAC is still run by fools and cads.
Word of the Day
"Desideratum" - noun [$10]
Desideratum means something desired as essential.
Sentence: Strong improvement on the job market is the crucial desideratum for further economic and market advances.
Krypto sold quite a bit of gold (the ETF - GLD), gold stocks, REIT index fund ETF (VNQ), and emerging market ETF (VWO) and the sister index fund. Overall this was about 3.5% of Krypto Fund holdings which were moved to money market funds. All the monies were in retirement accounts, hence no tax affects. TIPS and bonds (except certain municipal bonds) do not seem like good buys to me now, so I'll wait, probably a year until the Fed starts to raise rates. If the stock markets pull back, I can re-buy at lower prices. Patience, grasshopper ....
The speculative 1-2-3 Fund is mostly cash now, too, as all the S&P calls were sold earlier this week as posted. I have some MT stock, MT calls, HBC calls, BA calls and some RIMM, CX and VVUS. I expect a good jobs numbers and will likely take all sugar on all options on any ramp after the number - IF I'm right.
On a push towards S&P 1200, I will look for short plays. My first stop will be any market leaders that fail to make new recovery highs. Second will be whatever sectors I think might be over-extended and ready for a drop. I think the beefers are already distributing stocks like AAPL, GS, etc. They will pull the trigger on all their holdings before year end IF their management fees seem in danger.
I don't expect a big pullback unless something bad happens, like Obama passing his cluster FUBAR health plan. IF that passes, job stagnation will rule for a decade or more.
Yesterday's late selloff had two possible causes: (1) GS put out a negative forecast for this AM's job number to select clients (GS does this the day before the number recently), or (2) general big cap selling by institutions raising funds to buy the BAC offering. Or both.
That BAC offering was something called "Common Equivalent Securities" - CES for short. I suppose they came from some investment banking firm's CESspool. What a bunch of s&^% ! If you want to sell stock, sell stock. Only a fool hasn't learned that complexity is costly and dangerous. Of course, BAC is still run by fools and cads.
Word of the Day
"Desideratum" - noun [$10]
Desideratum means something desired as essential.
Sentence: Strong improvement on the job market is the crucial desideratum for further economic and market advances.
Tuesday, July 21, 2009
Looking for Screaming Buys
Over the past nine months investors had the opportunity to buy three ridiculously cheap asset classes: municipal bonds last fall and winter, stocks in February, and corporate bonds early this year. I got two of those, viz. the municipal bonds and stocks. I missed the corporate bonds since I already had an overweight position in the fixed income class.
One strategy long term investors can use, in addition to simple asset allocation, is to wait for screaming buys to appear to deploy new money. Just keep the money in cash or bank accounts or solid money market funds until a screaming buy comes into view. Then deploy that cash in a few (2-4) blocks into the cheap asset class. One's asset allocation model for long term investments might help identify this class, or not.
Now my asset allocation model is again telling me to buy commercial real estate assets. It's also signalling a simple re-balancing into Treasury inflation protected securities. A few months ago it had me sell some of those to buy stocks. Now it wants me to reverse that very profitable trade. With my distractions, I've waited but am now noodling over it.
For now, I wait.
California claims to have made a budget deal. I'll read the details before commenting.
Yesterday was a good rally to the top of the consolidation range. I wonder if any real buyers are left to take it higher barring good news ? Maybe if earnings and guidance this quarter are good.
I put some money into Fido Fund to take advantage of any dip in the price of FCX. I have serious seller's remorse on that one. I should have simply put it into Fido Fund, instead of selling out in Obama Fund. But the distractions clouded my thinking. Oh well, perfection is a high bar to clear.
Word of the Day
"Entelechy" - noun [$10] Philosophical
Entelechy means 1. realization of potential; 2. the supposed essential nature or guiding principal of a living thing.
Sentence: To avoid going nuts in retirement, Bunkerman released the intellectual entelechy of the verbal half of his mind to study the humanities and languages. So far, its working.
Le Mot du Jour
"Se méfier" - pronominal verb; takes 'de'
Se méfier means to not trust, to distrust.
La Phrase: L'homme du bunker se méfie de l'autorité.
Sentence: Bunkerman distrusts authority.
One strategy long term investors can use, in addition to simple asset allocation, is to wait for screaming buys to appear to deploy new money. Just keep the money in cash or bank accounts or solid money market funds until a screaming buy comes into view. Then deploy that cash in a few (2-4) blocks into the cheap asset class. One's asset allocation model for long term investments might help identify this class, or not.
Now my asset allocation model is again telling me to buy commercial real estate assets. It's also signalling a simple re-balancing into Treasury inflation protected securities. A few months ago it had me sell some of those to buy stocks. Now it wants me to reverse that very profitable trade. With my distractions, I've waited but am now noodling over it.
For now, I wait.
California claims to have made a budget deal. I'll read the details before commenting.
Yesterday was a good rally to the top of the consolidation range. I wonder if any real buyers are left to take it higher barring good news ? Maybe if earnings and guidance this quarter are good.
I put some money into Fido Fund to take advantage of any dip in the price of FCX. I have serious seller's remorse on that one. I should have simply put it into Fido Fund, instead of selling out in Obama Fund. But the distractions clouded my thinking. Oh well, perfection is a high bar to clear.
Word of the Day
"Entelechy" - noun [$10] Philosophical
Entelechy means 1. realization of potential; 2. the supposed essential nature or guiding principal of a living thing.
Sentence: To avoid going nuts in retirement, Bunkerman released the intellectual entelechy of the verbal half of his mind to study the humanities and languages. So far, its working.
Le Mot du Jour
"Se méfier" - pronominal verb; takes 'de'
Se méfier means to not trust, to distrust.
La Phrase: L'homme du bunker se méfie de l'autorité.
Sentence: Bunkerman distrusts authority.
Monday, April 6, 2009
Monday Meandering
Coppers prices crack through $2/lb on the upside.
Obama Fund is in the green again, but Fido Fund is crushing it.
FYI, Obama Fund contains high risk stocks chosen from industries that have done well in the past coming out of severe recessions. The principal selection criterion is a potential to rise by 3x on a "return to normalcy" in 18 months.
Fido Fund includes my old favorites, principally in the resource sector, plus select technology and banking stocks.
Both funds were red a month ago. I added some to their positions then, and trimmed some last week in Obama Fund.
By the way, Obama Fund is so named as it requires Obama's his success in reviving the economy (or at least not screwing it up) for the Fund to succeed. Fido Fund is named after my old dog, Fido, whose name means "loyal", hence it includes my old favorite stocks.
I group my stocks this way to evaluate the strategies I'm using in these speculations.
The Swamp
That's DC. WSJ reports Larry Summers received almost $3 million in speaking fees from hedge funds. These looters in DC seems to have no shame in accepting what are obviously bribes. I suppose the chances of real regulation of hedge funds is rather dim. Summers and Shapiro and the clique will probably kill it quietly, unless France and Europe keep pushing hard. Sigh ... here I am hoping for France to provide some leadership for the US. What is the world coming to ?
North Korea, etc.
That gangster state tests its ICBM program. China and Russia seems unwilling to do anything. Of course, they are not threatened yet and like to see the US and its allies worry. This is why Russia opposes European anti-missile defenses. Russia supplies Iran with nuclear technology and probably missile technology to make money and likes to see the US squirm. But then Russia squeals when the US acts in defense of Europe.
Russian leaders like Putin and Chinese communist leaders seem unable to think outside the box, viz. the old cold war confrontational behavior.
Word of the Day
"Confraternity" - noun [$10]
Confraternity means a brotherhood, especially religious or charitable.
Sentence: The confraternity of DC leaders, regulators and the rich, moneyed crowd seems pervasive in the Obama administration. Is there any one person in it who has not fed at the hog trough ?
Le Mot du Jour
"Assouplir" - verb, transitive; regular -ir conjugation
Assouplir means to soften, to relax, to make supple.
La Phrase: L'administation d'Obama assouplira bientôt les sanctions contre Cuba.
Sentence: The Obama administration will soon relax the sanctions against Cuba.
Obama Fund is in the green again, but Fido Fund is crushing it.
FYI, Obama Fund contains high risk stocks chosen from industries that have done well in the past coming out of severe recessions. The principal selection criterion is a potential to rise by 3x on a "return to normalcy" in 18 months.
Fido Fund includes my old favorites, principally in the resource sector, plus select technology and banking stocks.
Both funds were red a month ago. I added some to their positions then, and trimmed some last week in Obama Fund.
By the way, Obama Fund is so named as it requires Obama's his success in reviving the economy (or at least not screwing it up) for the Fund to succeed. Fido Fund is named after my old dog, Fido, whose name means "loyal", hence it includes my old favorite stocks.
I group my stocks this way to evaluate the strategies I'm using in these speculations.
The Swamp
That's DC. WSJ reports Larry Summers received almost $3 million in speaking fees from hedge funds. These looters in DC seems to have no shame in accepting what are obviously bribes. I suppose the chances of real regulation of hedge funds is rather dim. Summers and Shapiro and the clique will probably kill it quietly, unless France and Europe keep pushing hard. Sigh ... here I am hoping for France to provide some leadership for the US. What is the world coming to ?
North Korea, etc.
That gangster state tests its ICBM program. China and Russia seems unwilling to do anything. Of course, they are not threatened yet and like to see the US and its allies worry. This is why Russia opposes European anti-missile defenses. Russia supplies Iran with nuclear technology and probably missile technology to make money and likes to see the US squirm. But then Russia squeals when the US acts in defense of Europe.
Russian leaders like Putin and Chinese communist leaders seem unable to think outside the box, viz. the old cold war confrontational behavior.
Word of the Day
"Confraternity" - noun [$10]
Confraternity means a brotherhood, especially religious or charitable.
Sentence: The confraternity of DC leaders, regulators and the rich, moneyed crowd seems pervasive in the Obama administration. Is there any one person in it who has not fed at the hog trough ?
Le Mot du Jour
"Assouplir" - verb, transitive; regular -ir conjugation
Assouplir means to soften, to relax, to make supple.
La Phrase: L'administation d'Obama assouplira bientôt les sanctions contre Cuba.
Sentence: The Obama administration will soon relax the sanctions against Cuba.
Thursday, September 27, 2007
Long Term Investing
The Yale Endowment returned 28% for the fiscal year ended June 30. That's excellent and is the #1 endowment return. The manager, David Swenson, wrote a book about how the individual can invest similar to his methods - as much as possible. The book is "Investment Success" and I recommend it. My Krypto Fund has actually been managed similar to his suggested methods for about 15 years. It's done quite well and the massive diversification really paid off in the Nasdaq bubble and burst periods. So for long term pension money and most other long term money, I recommend following the Swenson methods.
Short term trading can provide much higher returns - 100% or more - BUT that's a really huge amount of work and stress and there are long periods when nothing works. I used to do that with much success, but now don't: too much stress and work and I don't need those returns anymore.
BUT you can make really good returns on a portion of your investment money by long term investing in selected strong groups and strong stocks. That's my Alpha Fund. I limit the amount I risk there to no more than 20% of my market investment assets. I actually limit it more now as the absolute amounts have gotten a bit scary for me.
The beefers sometimes knock a stock or group down as they rotate or get into a shorting binge. That's when a good entry, dip buy can work. For example, CSCO. That stock has been putting up good numbers and is in the fast growing Internet space - it's a leader. The stock has a fine uptrend. CSCO reported great earnings, the stock popped up and the beefers immediately started selling & shorting it. The beefers hit it with their shorts/rotation and "world is ending" mantra. So one could have bought it under 30 AFTER the great earnings were known. I and some commenters did that. Since then, CSCO has done fine and just popped to a new high out of a fine, ascending triangle base.
I'm just using CSCO as an example how the dip buys of good stocks in a bull market can print fine numbers for an actively managed part of your investment mix.
PS: the reason I used the beefers as a whipping boy for creating good entries is because ... often there really is NO real reason for a stock's pullback. The beefers really do cause these moves with their antics. Just sit back and wait and be patient to get a good entry you can hold for a year or so.
Short term trading can provide much higher returns - 100% or more - BUT that's a really huge amount of work and stress and there are long periods when nothing works. I used to do that with much success, but now don't: too much stress and work and I don't need those returns anymore.
BUT you can make really good returns on a portion of your investment money by long term investing in selected strong groups and strong stocks. That's my Alpha Fund. I limit the amount I risk there to no more than 20% of my market investment assets. I actually limit it more now as the absolute amounts have gotten a bit scary for me.
The beefers sometimes knock a stock or group down as they rotate or get into a shorting binge. That's when a good entry, dip buy can work. For example, CSCO. That stock has been putting up good numbers and is in the fast growing Internet space - it's a leader. The stock has a fine uptrend. CSCO reported great earnings, the stock popped up and the beefers immediately started selling & shorting it. The beefers hit it with their shorts/rotation and "world is ending" mantra. So one could have bought it under 30 AFTER the great earnings were known. I and some commenters did that. Since then, CSCO has done fine and just popped to a new high out of a fine, ascending triangle base.
I'm just using CSCO as an example how the dip buys of good stocks in a bull market can print fine numbers for an actively managed part of your investment mix.
PS: the reason I used the beefers as a whipping boy for creating good entries is because ... often there really is NO real reason for a stock's pullback. The beefers really do cause these moves with their antics. Just sit back and wait and be patient to get a good entry you can hold for a year or so.
Saturday, February 10, 2007
The Krypto Fund
The Krypto Fund is my name for our core investments: these are our long-term, mostly retirement oriented investments. We don't plan tapping these until retirement. These exclude speculation & trading accounts, "Alpha" accounts, short-term savings in banks and similar funds. I'm going to describe the basic style here & will write a lot more over time about variations, taxes, withdrawal issues, why I do what I do, etc., but I think short/medium posts work best. For 2006, the Krypto Fund was up 17.1%; year-to-date it's up 2.8% - pretty good compared to the averages & hedge fund averages.
Krypto Fund contains almost all index funds in different asset classes: the allocations NOW are 30% US stocks, 20% foreign stocks, 20% real estate funds, 10% bonds, 10% inflation-protected bonds, 10% gold & silver. I use a spreadsheet to compute the asset class %'s weekly based on Friday's prices. The US stock funds are Vanguard Total Market Fund, the corresponding exchange traded fund (ticker VTI), or the CREF Stock Account. [Mrs. Bunkerman is a scientist, so her retirement savings from work go to TIAA-CREF funds. Their "Stock Account" has some foreign stocks, so I reallocate these out in the spreadsheet based on annual percentage components]. The foreign stocks are Vanguard Pacific Index, European Index and Emerging Markets Index Funds (& corresponding ETFs) - I allocate 1/3 of the total foreign stocks component to each, hence these are really 6.66% of total Krypto Fund each. The real estate asset class is the Vanguard Real Estate Index Fund and the TIAA-CREF Real Estate Fund. The bonds are the Vanguard Total Bond Market Index Fund and the TIAA traditional fixed income account. The inflation-protected bonds are Vanguard or TIAA-CREF inflation-protected bond funds, as appropriate. Gold & silver are mostly American Eagle gold coins and silver bullion bars. One can use the ETFs for gold & silver (tickers are GLD and SLV, respectively).
I use the corresponding Vanguard Admiral funds if I can as their fees are slightly lower, but with various old accounts spread over two of us over the years, that's not always possible. The Vanguard Real Estate Index Fund invests in REIT stocks, by the way, while the TIAA-CREF Real Estate Fund invests in actual buildings, etc., so they perform somewhat differently.
The spreadsheet computes the % size of each asset class each week. IF an asset class is more than 5% off its target percentage, I look to reallocate some funds to top it off if it's low or take some out if it's too large. For example, if the US stocks are over 31.5% of the total Krypto Fund, that's 5% of the target 30%. So I look to see what's low & move the excess 1.5% to other asset classes. One has to consider fund restrictions for frequent moves, but since we have multiple accounts, I have always been able to figure out a way to reallocate.
See David Swenson's great book, "Unconventional Success" for a description of why this type of personal investing works well. I have done long-term investing along this strategy for over 20 years. When I read his book, I was happy to see he agreed with me (joke haha) and I learned about the value of the inflation-protected bonds. So I added that asset class. I also adjusted my rebalancing trigger to 5% from 10%, as I realized from his book I had been missing many good re-balancing opportunities with a 10% trigger. My percentages were pretty close to his, otherwise. Also, I have some gold & silver for many reasons.
I love that name, The Krypto Fund. I like to think my dog, Krypto, pushes the computer key every week to do the reallocation. She accepts dog biscuits as payment. :-)
Krypto Fund contains almost all index funds in different asset classes: the allocations NOW are 30% US stocks, 20% foreign stocks, 20% real estate funds, 10% bonds, 10% inflation-protected bonds, 10% gold & silver. I use a spreadsheet to compute the asset class %'s weekly based on Friday's prices. The US stock funds are Vanguard Total Market Fund, the corresponding exchange traded fund (ticker VTI), or the CREF Stock Account. [Mrs. Bunkerman is a scientist, so her retirement savings from work go to TIAA-CREF funds. Their "Stock Account" has some foreign stocks, so I reallocate these out in the spreadsheet based on annual percentage components]. The foreign stocks are Vanguard Pacific Index, European Index and Emerging Markets Index Funds (& corresponding ETFs) - I allocate 1/3 of the total foreign stocks component to each, hence these are really 6.66% of total Krypto Fund each. The real estate asset class is the Vanguard Real Estate Index Fund and the TIAA-CREF Real Estate Fund. The bonds are the Vanguard Total Bond Market Index Fund and the TIAA traditional fixed income account. The inflation-protected bonds are Vanguard or TIAA-CREF inflation-protected bond funds, as appropriate. Gold & silver are mostly American Eagle gold coins and silver bullion bars. One can use the ETFs for gold & silver (tickers are GLD and SLV, respectively).
I use the corresponding Vanguard Admiral funds if I can as their fees are slightly lower, but with various old accounts spread over two of us over the years, that's not always possible. The Vanguard Real Estate Index Fund invests in REIT stocks, by the way, while the TIAA-CREF Real Estate Fund invests in actual buildings, etc., so they perform somewhat differently.
The spreadsheet computes the % size of each asset class each week. IF an asset class is more than 5% off its target percentage, I look to reallocate some funds to top it off if it's low or take some out if it's too large. For example, if the US stocks are over 31.5% of the total Krypto Fund, that's 5% of the target 30%. So I look to see what's low & move the excess 1.5% to other asset classes. One has to consider fund restrictions for frequent moves, but since we have multiple accounts, I have always been able to figure out a way to reallocate.
See David Swenson's great book, "Unconventional Success" for a description of why this type of personal investing works well. I have done long-term investing along this strategy for over 20 years. When I read his book, I was happy to see he agreed with me (joke haha) and I learned about the value of the inflation-protected bonds. So I added that asset class. I also adjusted my rebalancing trigger to 5% from 10%, as I realized from his book I had been missing many good re-balancing opportunities with a 10% trigger. My percentages were pretty close to his, otherwise. Also, I have some gold & silver for many reasons.
I love that name, The Krypto Fund. I like to think my dog, Krypto, pushes the computer key every week to do the reallocation. She accepts dog biscuits as payment. :-)
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