My Investing Notebook
:: Learning from the pros; making decisions on my own. ::
My Investing Notebook
:: Learning from the pros; making decisions on my own. ::
Contrary to the popular belief, house prices do come down. Check out this historical chart (from ’88 to ’06), from NY Times.
There was an interesting observation in the S&P Outlook recently. Since 1945, in the period from November-April, the S&P 500 returned 7.19%; in the May-October period, just 1.6%. What do do? Sell in May, and Buy back in November!
I think this is true this year. I feel like we’re due for a correction. It might be a good time now, especially after the recent records.
They recommend doing the following.
For May-October overweigh- consumer staples- health care
For November – April overweigh- financials- industrials- materials- consumer discretionary- information technology
Now that’s an interesting observation…
Here’s a chart that breaks the returns by month, averaged since 1950.
ETFs are great. They allow you to buy the whole index of stocks with one purchase. I have always like them. But these days, there are new ETFs coming daily. Where should you invest? John Bogle, featured in Barron’s has some good advice, I think.
Q: Let’s say an individual has a million dollars to spend in constructing a stock and bond portfolio with ETFs. What kind of ETFs would you recommend their using?A: First off, we expect that investors should talk with their financial advisers about their particular needs. The basic strategy that we see people using is buying the broad benchmark, so perhaps the Russell 3000 Index Fund (ticker: (IWV)) and the MSCI EAFE Index Fund ( (EFA)), which gives you exposure to all the developed non-U.S. markets such as Western Europe and Japan. And depending on an individual risk tolerance and preferences and liquidity needs, we have bond funds. If you want to maintain greater liquidity, we see a lot of people who do that in our short-term Treasury fund [Lehman Short Treasury Bond Fund] ( (SHV)). But for longer-term investments we see people investing more frequently in things like the iBoxx Investment Grade Corporate Bond Fund ( (LQD)).
ReferenceWhat’s the Skinny on Skinny ETFs? – Barron’s Online
A great set of links on various topics related to investing. Check it out and select the ones you like. I’m sure you’ll find something for you.
ReferenceThe Investor’s Toolset: 57 Must-Have Web Resources, Ask The Advisor blog (excellent blog, BTW)
Excellent and thorough article on a basic, fundamental truth. It’s something that I deeply believe in: investing is for the long term. If you think you can time the market, you might get burned out, especially now. But if you can invest for the long term, for at least five years, you’ll do well. Simple as that.
ReferenceReacting to Market Declines: The Case for Staying Invested, Fidelity Investor’s Weekly Newsletter (very good newsletter, btw)
I’m kicking myself a bit. How come I did not know about the subprime lenders before?! I had been talking about a housing downturn for some time now. However, till last couple of weeks, when the meltdown actually began, I did not know that there were lenders that were doing subprime lending only. Had I known, I would have shorted New Centrury ( (NEW), almost bankrupt, from $30), Accredited ( (LEND)), Novastar ( (NFI) and Fremont ( (FMT)).
Either way, shorting is very risky. I tried shorting Countrywide ( (CFC)), but I only did it for a day. I chickened out after I read a favorable report on the stock. Countrywide, even though it has the biggest exposure to subprime, is a sound company. Plus, it’s already down a lot.
Housing downturn has only begun. I am still hoping things will settle down in 2008, but it might be even longer than that.
I like Vanguard as a company. I have been with them for a couple of years now. I like what they offer: both, in terms of fund selection, and in terms of the services they offer.
Why would I want to invest in Vanguard funds? First, they give you a good selection. And second, you can put your investments on auto pilot: you can actually do dollar-cost averaging at no cost!
So far, I have invested in 2 funds at Vanguard (NJ Tax-Free Fund; and S&P Index Fund). Every month, $50 gets automatically invested into each of them from my bank account. I really like that.
The downside? There is usually a $3K minimum investment for each of the funds. (It would be great if it was $1K.)
I am planning to shift some of my money from my brokerage account into Vanguard. Like I said, having an auto pilot is a very good benefit for me.
Here are some of the funds at Vanguard that I find interesting (besides the 2 I own). You can take a look at all of them at https://flagship.vanguard.com/VGApp/hnw/FundsByTypeSec
Taxable Short-Term BondVanguard Short-Term Investment-Grade Fund Investor Shares (VFSTX)Average annual return: 4.96% (1 year) 3.68% (5 year) 5.13% (10 year)
BalancedVanguard STAR Fund (VGSTX)Average annual return: 9.79% (1 year) 8.63% (5 year) 8.94% (10 year)
Vanguard Wellesley Income Fund Investor Shares (VWINX)60% bonds; 40% stocksAverage annual return: 10.69% (1 year) 7.26% (5 year) 8.51% (10 year)
Vanguard Wellington Fund Investor Shares (VWELX)32% bonds; 65% stocksAverage annual return: 12.85% (1 year) 9.04% (5 year) 9.52% (10 year)Negative: 10K initial investment required
Domestic Stock – GeneralVanguard Dividend Growth Fund (VDIGX)Average annual return: 17.84% (1 year) 7.56% (5 year) 6.84% (10 year)
Vanguard Windsor II Fund Investor Shares (VWNFX)Average annual return: 17.19% (1 year) 10.90% (5 year) 9.89% (10 year)
International/Global StockVanguard International Value Fund (VTRIX)Average annual return: 18.94% (1 year) 18.05% (5 year) 9.67% (10 year)
Vanguard Total International Stock Index Fund (VGTSX)Average annual return: 19.64% (1 year) 17.41% (5 year) 8.15% (10 year)
Vanguard Global Equity Fund (VHGEX)Average annual return: 19.12% (1 year) 17.94% (5 year) 12.50% (10 year)
I think I’m going to do a little re-shuffling in my portfolio soon. (I will create a post of my current holdings soon).
(AIG) has been dropping lately. I have to look at the Value Line report for it. I might sell it.
(XLI) has not moved much. I’m up only 2% on it. I might consider unloading it and use the money for something else.
Walgreen (WAG) is another stock I’m not sure about. It’s a stock that analysts love (it’s got the highest Value Line rating for safety and for timeliness). I’m up on it but I’m not too sure about the stock.
I am bullish on the following countries: Brazil, Mexico, Canada, and Australia. Especially Brazil. Granted I don’t know much about these countries, except that they have been growing fast in the past several years. But they’re stable countries and I think it will diversify my portfolio even more.
Australia Index ( (EWA)). 1 year return: 15.83%; 5 year return: 148%.Brazil Index ( (EWZ)): 1 year: 70%; 5 years: 187%Canada Index ( (EWC)): 1 year: 33%; 5 years: 103%Mexico Index ( (EWW)): 1 year: 45%; 5 years: 194%
One other stock that I will buy is Du Pont (DD). Very stable stock and I think it’s got very good potential in the next several years.
Here are my current holdings in the beginning of 2007. My strategy now is still go with a defensive lineup and also diversify more internationally. I also decreased my position in energy. I’m going to stick to my strategy and even increase my exposure to ETFs and opt for less risk than investing in individual stocks.
AIG (AIG) » Insurance: $68: A giant that’s beaten up a bit. Should recover. Quality stock..
General Electric (GE) » Conglomerate: $36: Quality company with good management. Diversified. Looks cheap.
Kraft (KFT) » Food: My recent addition. Company makes good products, moves into more healthy oriented products. Good international player.
Matsushita (MC) » Consumer Electronics: Panasonic makes the best plasmas and cameras. Good growth potential.
Medtronic (MDT) » Health Products: It’s beaten down now but a quality company with very good growth potential.
Pfizer (PFE) » Drugs: One of the biggest and beaten down. Good pipeline.
Time Warner (TWX) » Media & Internet Services: I believe content is the king and will eventually provide the most value. I’m losing my patience with AOL and I might unload in the near future.
Verizon (VZ) » Telecom: I’m still optimistic about the fiber rollout. The best wireless provider.
Yahoo (YHOO) » Internet Services: I think Yahoo is cheap compared to Google. Good search technology. Very good growth potential. Cheap.
Exxon Mobil (XOM) » Energy: The biggest energy player. Safe bet.
My current ETFs
Emerging Market Index (EEM) » International: It slowed down recently but still a good diverifier.
Europe Index Fund (EFA) » Europe: Recommended by S&P, good diversified holding.
Pacific, Excluding Japan (EPP) » Pacific: Recommended by S&P. A lot of potential growth.
Japan Index (EWJ) » Japan: Japan is recovering. Recommended by S&P.
US Telecom Sector (IYZ) » Telecom Sector: Telecom is a good defensive sector.
S&P Midcap 400 (MDY) » Midcaps: Recommended by S&P.
Spider Divident ETF (SDY) » Divident Focused: I am a big fan of companies that keep increasing their dividents. This ETF is focusing on that.
Vanguard Divident ETF (VIG) » Divident Focused: Similar story to SDY, divident focused with a little different lineup.
S&P Index (SPY) » S&P: Over the years, the S&P index beats most of the funds.
Vanguard Energy ETF (VDE) » Energy: Is energy ever going to go down? Probably, but not anytime soon it looks like.
Vanguard Health Care (VHT) » Health Care: Baby boomers are starting to retire. Health care has very good growth potential.
Consumer Staples Sector (XLP) » Consumer Staples: Even in a slow economy, people still need to buy everyday products. Good defensive player.
Lehman Aggregate Bond Fund (AGG) » Bond: I hold it because it’s recommended by S&P. I do think that diversification in bonds is imporant.
Lehman 1-3yr Tresuries (SHY) » Bonds: Recommended by S&P.
Whoa, that took me some time. I have 3-5% in most of these, with around 7% for the S&P Index.
Is is a good time to buy now?
I don’t think so. It’s going to take a lot longer for this market to finally settle down. It’s going to be up and down for some time.
The housing market will settle down and might start going up sometime in 2008 — I’m not the only one that thinks like that, a lot of economists have the same view. Why so long? It was an up market for a long time, 1998 – 2005. It’s going to take a long time come down.
“It may not be until 2008 until the market bottoms out,” predicted James Hughes, dean of the Bloustein School of Planning and Public Policy at Rutgers University.The problem, Hughes said, is the “extraordinary gains” in the market played out over seven years, from 1998 to 2005. When the highs last a long time, “it takes time to adjust,” he said.
I see a lot of reductions in the current market, but they’re not big enough for me. The way it looks now, I can probably buy something in the 350-400K range (in NJ). I’m looking for something around 300K. Not there yet. But I think it will get there by 2008. If not, oh well, I’ll have to pay more, or continue renting.
ReferenceNew-home sales still declining, NJ.com
Sorry. No data so far.