I've sold what I'm going to sell for the year and am 31% invested at this point. I bought a car, have a bond fund for the first time and am going to ride out the rest of the year as is. I could actually use a break from thinking about this for a while.
Here's where I stand:
So ... I was all set to make a big mortgage payment and starting thinking ... what if the market goes down 2,000 points and I can't buy any of it? (I'm a sucker for a bargain, you know.) So I've resolved to do the following:
I've got $30k that is just sitting around in cash; this was going to be my first big mortgage payment. Instead of paying now, I'm waiting until the end of the year. That will cost me $540 in tax-deductable mortgage interest. That seems small. If the Dow goes down to 9100, that's going back in the market instead of toward the mortgage. So I'm effectively paying $540 for a put that could be worth several thousand. That seems reasonable.
If the Dow goes down to 8,100 I'm selling the bonds and putting that back in the market. There's about $50k of that.
The real question is whether I want any of that to happen or not.
I thought that the middle of the year would be a good point to stop and take stock of what has happened so far. I have kept really good records of my choices and compared all of them to the return I would have had by investing in the S&P 500 from Vanguard (VFINX). I just record the price I would have paid for VFINX and determine which choices win and lose, including dividends. I have not included any cash or company stock (we have weird stock that doesn’t really fit in this discussion) so any “market timing” gains or losses are not included. I’m simply talking about my stock/bond choices and whether they win or loose vs the S&P. In other words, how am I at picking stocks?
5 years ago I would have laughed in your face if you would have told me you invested in individual stocks. (Why are you doing that? Because you hate money?) I didn’t think anyone could beat the market. 4 years ago I finally diverged from the S&P to buy an international index fund (I know, kooky talk!) Then 3 years ago I finally started picking sectors, ETFs, and even a couple individual stocks. At one point I didn’t own a single dollar of the S&P which means I went from 100% S&P to 0% S&P in the course of about 2 years. One of my thoughts at the beginning of this year was to get back into the S&P which I did to some extent. That’s been the right choice to this point out at least compared to the other investments I was in. So it’s interesting that I’ve unintentionally started to come full circle.
Anyway, let’s start with high-level summary. Keep in mind all of my comments are vs. the S&P unless otherwise noted.
I beat or tied (+/- 1%) the S&P in 9 out of 10 quarters. If you feel like like stopping here and sending me your money you may want to read on. In the quarter that I did not beat the S&P, my choices cost me $18k, turning the disastrous QIV08 into an absolute abortion. S&P was down something like 25%; I was down a truly painful 35%. The most I’ve even been “up” in aggregate was about $22k and the most I’ve ever been “down” was about $14k.
So, I find this amazing, but after 10 quarters of gnashing my teeth, listening to banker calls, and begging my company Treasury reps for the pension analysis reports, I’m down $730 vs the S&P. About .002%. In other words, I’m dead even. I could maybe get away with saying there is a moral victory in there somewhere since the fees I’ve paid are more than the $730 but people would also rightly say that fees are part of the equation. It would also probably be accurate to say that I’m a loser when considering taxes (the buying and selling is not as tax efficient as just holding the S&P, or at least I would imagine).
But the point is, I’ve tried pretty darn hard for several years now and have broken exactly even. My conclusion is that I’ve chosen riskier than the S&P, so when the market goes up, I go up a little more, and vice versa. None of my choices are utilities or P&G, what fun would that be? Instead, I’ve got energy funds and Singapore ETFs (in other words, high Beta choices)
So, here’s a rundown of all my choices and how they’ve fared. All figures are lifetime, not just 2010. And a little commentary regarding where I screwed up or not.
I currently own:
Large Growth (VIGRX)
International (VGTSX)
Emerging Markets (VEIEX)
Singapore ETF ((EWS)
Agriculture ETF (MOO)
POT (POT)
Gold ETF (GLD)
Total Bond Fund (VBMFX)
Everyone keeps saying that the large, quality companies are due to take off because the small caps have had a spectacular decade. I’m up $1,700 on the pick (VIGRX) but am basically still waiting for that to happen.
International, Emerging, and Singapore have done well also, I’m up about $4,300 combined. I sold half of my Emerging Markets earlier this year; that was a good move.
MOO and POT are my “the world is getting hungrier every day” play which has not worked. I’m down $2,200 which is a lot for the small investment I’ve made in them. I’m still really surprised these haven’t worked out.
I’ve had GLD for a while now, wish I had a lot more. I’m up $1,600 on a small investment. That’s probably my best pick so far, except for …
…the Total Bond Fund (VBMFX) that I bought in April of this year at almost the exact equity peak of the year. Booyah! I sold International and other stuff and bought this. A great lucky call, netting me $5,500 in about 60 days.
Some losers that I’ve sold:
International Growth (VWIGX) – This fund just stinks. It got creamed by the International Index and I lost about $2,600.
Brazil ETF (EWZ) – Bad, bad timing on this one. Bought it right before the ’08 crash and it crashed at triple speed. $3,500 loss.
REITs (VGSIX) – Same as above. I bought this on the advice of some genius banker on a conference call. $1,700 loss.
Banks ETF (VFH) – Thought I could time the turnaround, didn’t have the stomach for it, sold too early. $500 loss. At one point I emailed my buddy asking him how Bank of America’s market cap could be $100M less than it’s book value. He didn’t know and I didn’t do anything about it. Then their stock tripled from the date of the email.
DBA & DBC (Commodities) – Long ago thought inflation was coming and commodities were the way to get some protection. Bad move - $3,000 loss.
Shorting Treasuries (TBT) Whoops. That's got to be the play at some point, right? Not yet. $3,300 loss last year.
Energy (VGENX) – This was a good choice, netting about $3,000. I sold it earlier this year as part of my “market timing” experiment.
So what did I learn from all this? I think more than anything else, stay away from the conventional wisdom. At the 2007/2008 peak I bought into the REIT talk and the Brazil talk. A couple areas that had done very well to that point and it was easy to believe the story.
Basically, you probably have to learn your ideas from somewhere but it can’t be the same ideas that everyone already knows. If you don't have a unique point of view your willing to bet on, it's a fools errand. It’s a fine line I guess.
Lastly, you have to really stop and think who is telling you the story. TV guys and banks are basically always selling the Bull story to try to get you to execute the next buy trade. The Internet guys are mainly selling doom and gloom ("but if you subscribe to our newsletter we'll tell you how bad it's going to get and what canned goods are the best to have!") So you have to take both points of view with a grain of salt. There are some good ideas coming from both but you have to filter the noise.
