Stay Attentive to Coming Posts

Weekend Activities

1) Look for the "Creme List" of stocks to be posted soon after the market closes today.

2) The business month closes today and if all goes well, TDAmeritrade will have their monthly statements available before the market opens on Monday. This permits TLH spreadsheet users the opportunity to balance the portfolio data with the broker statement. I don't know if other broker houses are this quick in making their monthly statements available.

3) While all the dividends are not likely to be entered by tomorrow, I still hope to post a Portfolio Performance data table early in the day.

While I am not recommending any reader short bonds by purchasing TBT, this article does make for interesting reading. My position has been one of reducing the allocation to bonds.


Photograph: Lisbon government buildings.

Portfolio Construction

Building the Kenilworth

Portfolio construction, as pointed out in past blog entries, is a multiple step process. The first step in the process is to select asset classes. This is what I am doing with the Kenilworth portfolio, so let's focus on that portfolio. So far the investments include U.S. Equities in the form of VTI. Since we have so little cash available, I chose to go with a total market ETF instead of breaking it into the Big Six or Big Nine asset classes that make up U.S. equities. The Kenilworth currently holds REITs, another of our basic asset classes. VNQ is the ETF used to cover REITs. Limit orders are in for Developed International Equities (VEU) and Emerging Markets (VWO).

With VTI, VEU, VWO, and VNQ, we have four asset classes covered. As the portfolio grows, we will begin to split VTI into six or nine sub-asset classes to take advantage of Fama-French research. [Read more…]

Portfolio Performance – 22 October 2010

The following data table exhibits the latest portfolio performance information through October 22. Two critical measurements are found in the last two columns, the Sortino Ratio (SR) and the Retirement Ratio (RR). Of the ten portfolios tracked using the TLH spreadsheet, most showed a slight decline in the SR and RR values since last posted. Other data to pay attention to is the difference between the portfolio performance and the IRR value for the VTSMX benchmark. We want that value to be positive and as high as possible. Anything over zero is considered to be excellent.

If anyone is interested in how the SR and RR values are calculated, just ask or do a search on this blog. To really understand the calculation, one needs to dig into the SR worksheet found within the TLH spreadsheet.

Overall, we are extremely pleased with the performance results.

Portfolio Performance - 10/22/2010

Portfolio Last Update Launch Date Tracking Tool Port. IRR ITA Index Diff Port. vs. ITA Index VTSMX IRR Diff. Port. vs. VTSMX Index IR SR RR
AA-Mosaic 09/301/2010 07/21/1999 Captool 1.95% NA NA -0.42% 2.37% 0.05 NA NA
Curie 10/22/2010 12/26/2007 TLH SS 3.7% -0.9% 4.6% -2.7% 6.4% NA 9.3 2.3
Mosaic2 09/30/2010 07/19/1999 Captool 4.37% NA NA -0.61% 4.98% 0.15 NA NA
Newton 10/22/2010 06/02/2008 TLH SS 8.5% 4.3% 4.2% 4.4% 4.1% NA 10.2 10.2
Passive Port. 09/30/2010 12/01/2000 Captool 4.73% NA NA 0.02% 4.71% 0.68 NA NA
Schrodinger 10/22/2010 12/01/2000 TLH SS 4.9% 12.8% -8.0% 2.0% 2.9% NA 10.9 10.9
Jane 09/30/10 02/14/1997 Captool 8.69% NA NA 3.07% 5.62% 0.53 NA NA
Einstein 10/22/2010 06/30/2008 TLH SS 14.0% 22.8% -8.8% 8.4% 5.7% NA 6.0 6.0
Gauss 09/30/2010 02/19/1997 Captool 8.86% NA NA 3.04% 5.82% 0.22 NA NA
Kepler 10/22/2010 11/01/2008 TLH SS 22.6% 32.8% -10.3% 18.9% 3.7% NA 5.5 5.5
Scrappy 09/30/2010 08/14/2008 Captool 10.53% NA NA -4.12% 14.65% NA NA NA
Bohr 10/22/2010 08/14/2008 TLH SS 12.0% 15.1% -3.1% 1.7% 10.3% NA 9.8 8.2
Kenilworth 10/22/2010 08/18/2010 TLH SS 52.3% 30.6% 21.7% 61.0% -8.7% NA 0.6* 0.6*
Projects 09/30/2010 12/01/2000 Captool 4.93% NA NA 0.02% 4.91% 1.31 NA NA
Washington 09/30/2010 06/18/1999 Captool 2.77% NA NA -0.19% 2.96% 0.27 NA NA
Maxwell 10/22/2010 12/25/2000 TLH SS 0.2% 1.7% -1.5% 3.0% -2.8% NA -1.5 -1.5
Adams 09/30/2010 06/18/1999 Captool 2.84% NA NA -0.19% 3.03% 0.70 NA NA
Euclid 10/22/2010 06/30/1999 TLH SS -1.6% 0.5% -2.1% 3.1% -4.7% NA -1.6 -1.6
Jefferson 09/30/2010 03/13/2008 Captool 5.36% NA NA -3.63% 9.26% NA NA NA
Madison 10/22/2010 03/13/2008 TLH SS 5.9% 1.6% 4.3% 6.6% -0.7% NA -1.1 -1.1

 

 


Michael Allen Harrison: Favorite Compositions

Michael Allen Harrison, composer and pianist, and a man of extraordinary talents is the featured artist of this weeks CD recommendation. This double CD set is a compilation of his favorite compositions and it includes many four and five star recordings in my rating system. These Harrison recordings came to me by way of a gift. The following portion of a recommendation is a good summary of my own opinion.

"My one-word summary of Michael Allen Harrison's double CD set, "Pianist/Composer," is "WOW!" I have seen and heard Harrison's name for a long time, but none of his CDs came my way for review until I reviewed one of his students' CDs (the very impressive Alexx Carnathan) earlier this year. I was not prepared to be so dazzled and charmed at the same time. This set is made up of Harrison's favorite compositions from the past twenty years or so, and includes his new "Concerto #1 in Eb Major," which is a tour de force all by itself. Both discs are very eclectic in their musical range, but Disc 1 is more classical overall, and Disc 2 has a jazzier flavor. The majority of the pieces are orchestrated or have accompanying instruments in addition to the piano, but Harrison's piano is the star of the show. We're only halfway through the year, but I'm certain that this will be on my list of favorites for 2004. "

For more music recommendations, mover over to the right-hand edge of the table, look under Categories for Music, and click on that link for other selections.

Photograph: Monkey on Rock of Gibraltar.

To Use or Not Use Short or Contra ETFs

ITA Wealth Management readers know that the ultra-short ETF, SDS, is held in several portfolios. That position may need more thought based on information from a recent article in the AAII Journal. SDS is an ultra-short or contra ETF. What that means is the SDS is designed to move in the opposite direction as the S&P 500. In fact, it is to move twice as fast in the opposite direction as the S&P 500.

My idea for using the SDS was a hedge against an over-bought market condition, not dissimilar to what we have right now. It was not my intention to use SH or SDS as day trading vehicles. Instead, I planned to hold them for months or until such time as the broad market retraced some of its current gains. Then I read the AAII Journal article, "The Individual Investor's Guide to Exchange-Traded Funds 2010." Let me quote directly from the article.

On page 16 of the AAII October issue we read, "Funds that move with a greater magnitude than the index they track use leverage. For every dollar invested, an investor has the potential to earn double or triple the return he would otherwise earn. At the same time, the magnitude of potential losses is two to three times greater. In other words, these are very risky investments. [Read more…]

Portfolio Performance Update: 15 October 2010

The data table below includes updates for the ten portfolios tracked using the Captool software. Those portfolios are current through 9/30/2010 and the ten portfolios tracked using the TLH spreadsheet are updated through 10/15/2010. If you have never seen one of these Portfolio Performance data before, the last two columns, Sortino Ratio (SR) and Retirement Ratio (RR) are significant in that they measure the performance of the money manager with respect to risk. Both SR and RR use semi-variance rather than mean-variance to calculate portfolio risk.

The internal rate of return (IRR) of each portfolio is compared with Vanguard's Total Market Index Fund, VTSMX. In addition, those portfolios tracked using the TLH spreadsheet are compared with a customized benchmark, the ITA Index.

Take a little time to look over the data table and you will see that most of the portfolios are doing very well with respect to the two benchmarks.

 

Portfolio Performance - 10/15/2010

Portfolio Last Update Launch Date Tracking Tool Port. IRR ITA Index Diff Port. vs. ITA Index VTSMX IRR Diff. Port. vs. VTSMX Index IR SR RR
AA-Mosaic 09/301/2010 07/21/1999 Captool 1.95% NA NA -0.42% 2.37% 0.05 NA NA
Curie 10/15/2010 12/26/2007 TLH SS 3.5% -0.7% 4.2% -3.0% 6.5% NA 9.2 2.1
Mosaic2 09/30/2010 07/19/1999 Captool 4.37% NA NA -0.61% 4.98% 0.15 NA NA
Newton 10/15/2010 06/02/2008 TLH SS 8.4% 4.3% 4.1% 4.2% 4.2% NA 10.5 10.5
Passive Port. 09/30/2010 12/01/2000 Captool 4.73% NA NA 0.02% 4.71% 0.68 NA NA
Schrodinger 10/15/2010 12/01/2000 TLH SS 4.9% 13.8% -8.9% 1.9% 3.0% NA 11.1 11.1
Jane 09/30/10 02/14/1997 Captool 8.69% NA NA 3.07% 5.62% 0.53 NA NA
Einstein 10/15/2010 06/30/2008 TLH SS 14.1% 24.2% -10.1% 8.2% 5.9% NA 6.3 6.3
Gauss 09/30/2010 02/19/1997 Captool 8.86% NA NA 3.04% 5.82% 0.22 NA NA
Kepler 10/15/2010 11/01/2008 TLH SS 22.7% 33.4% -10.6% 18.8% 3.9% NA 5.9 5.9
Scrappy 09/30/2010 08/14/2008 Captool 10.53% NA NA -4.12% 14.65% NA NA NA
Bohr 10/15/2010 08/14/2008 TLH SS 11.9% 15.8% -3.9% 1.5% 10.4% NA 9.8 8.2
Kenilworth 10/15/2010 08/18/2010 TLH SS 42.0% 32.5% 9.5% 71.1% -29.1% NA -1.3* -1.3*
Projects 09/30/2010 12/01/2000 Captool 4.93% NA NA 0.02% 4.91% 1.31 NA NA
Washington 09/30/2010 06/18/1999 Captool 2.77% NA NA -0.19% 2.96% 0.27 NA NA
Maxwell 10/15/2010 12/25/2000 TLH SS 0.3% 2.0% -1.7% 2.9% -2.6% NA -1.4 -1.4
Adams 09/30/2010 06/18/1999 Captool 2.84% NA NA -0.19% 3.03% 0.70 NA NA
Euclid 10/15/2010 06/30/1999 TLH SS -1.7% 0.4% -2.1% 2.9% -4.6% NA -1.6 -1.6
Jefferson 09/30/2010 03/13/2008 Captool 5.36% NA NA -3.63% 9.26% NA NA NA
Madison 10/15/2010 03/13/2008 TLH SS 5.9% 1.5% 4.4% 6.3% -0.4% NA -0.7 -0.7

If there are questions, please post them in the comments box. Do register as a Guest.

Taxes: Prepare to Harvest Losses

It is not too early to think about capturing tax losses for 2010. We still have a few weeks before we need to make final decisions, but I would at least identify those stocks, index funds, or ETFs that are potential sell candidates. If you are using the TLH spreadsheet to track your portfolio, the information is easy to access. All one needs to do is examine the IRR, assuming you have not moved in and out of the investment to where one may have a loss on the shares held, but the IRR is positive do to prior gains. We will assume no such complicated trades took place.

To be more precise, go into the spreadsheet and examine what you paid for the shares and what they are valued at today. If it is a loss, make note of that fact as you will want to come back in late November or early December to make a final decision if you want to take the loss. Perhaps the loss will turn into a gain in two months.

This note applies only to taxable accounts.

Photograph: Pan Flute players on the Lisbon waterfront.

Free TDA Trades for 100 ETFs

Important News! Here are the instructions to receive free trades for 100 ETFs through TDAmeritrade.

1) Log on to account and go to the Research & Ideas tab.

2) Click on the ETF tab.

3) Look to the lower left side of the page and click on Commission Free ETFs.  Here is the link directly.

http://www.tdameritrade.com/trade/etflist.html

4) Read instructions and enroll.

 

Please note that this is for ETF investors, not ETF traders. If you buy an ETF and turn around and sell it within 30 days you will be charged a fee for such a trade.

Annualized Future Total Market Return

I've prepared a simple spreadsheet to project the Annualized Future Total Market Return. The equation used to make this calculation comes from John P. Hussman, of Hussman Funds. Use values found in the article to test the accuracy of the spreadsheet.

To gain access to the spreadsheet move to the right-hand edge of the page and scroll down to Interesting Sites. Then look for the Market Return Spreadsheet link. The spreadsheet is titled, AFTR.xlsx. The xlsx extension indicates I am using a current version of Excel. If you are unable to open the SS, let me know as I can save it in the traditional xls format.

To use the spreadsheet, one needs to work with four variables.

1. Growth Rate of Dividends. Use historical data or select your own percentage projection.

2. Yield of the S&P 500 or Total Market Index at the time of the calculation. When this blog entry was written, the percentage is 2.0%.

3. Expected Yield at the End of the Holding Period. This is a difficult projection. If one expects the market to go up, this percentage will likely decrease. If the market goes down, this percentage will be higher than the current rate.

4. The Holding Period in Years. This one is easy as the spreadsheet user determines over what time frame the analysis is to take place.

Play around with the four variables until you get a feel for what the equation is doing.

Photograph: Lisbon, Portugal

Investing Road Map

Searching for useful investing information is an ongoing task and yesterday I found something of use for every reader of ITA Wealth Management. Paul King has written a 50-page online investment book that is available to download if you will go to the right-hand edge of this page and look for Interesting Sites. Seek out the Investing Road Map link to download the PDF file. You will need to know where on your computer downloads land so you are able to find and open the book.

Readers will find this volume of use as it is an excellent summary of the investing style we use here on the ITA blog. The one thing I would add to the book is a method for monitoring and maintaining the portfolio after it is fully constructed. The TLH spreadsheet is my software of choice. Examples of its use are dotted throughout this blog.

 

Photograph: ITA author straddling the meridian line in Greenwich, England.