“Creme List” as of 1 July 2011

Platinum members interested in spicing up their ETF portfolios with a stock or two will find the following list of companies of interest.  No companies were purged due to missing 13 consecutive weeks, but a few are in jeoparty of losing their position next week.  Two companies are new to the list.  Stock selection is not the focus of portfolio construction here at ITA Wealth Management.  However, as a Mosaic investor I will pull in the occasional stock that shows exceptional promise.

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Mama, How Am I Doing?

I feel compelled to bring this blog entry forward from time to time lest new readers missed it when published nearly a year ago.

As little children we were always checking with one or more parents to see how we were progressing.  Whether it was swimming, roller skating, or learning how to ride a bike, it was not unusual to check in with an adult to gain a performance frame of reference.  So it is with portfolio performance.  What do we use as a reference or benchmark when measuring how well our portfolio is performing?  How are we doing and what is the standard?

Arbitrary measurement standards are unusual among the investing community.  Yet they exist.  Some investors insist on valuing their portfolio based on some fundamental standard, whether or not they would ever be able to sell their holdings at those "fundamental" values.  I am reminded of a neighbor who valued his house at X and ended up selling it for X – $300,000 three years later.  Setting a "fundamental" or "rational" value for a portfolio is nothing more than a "feel good" exercise.  It is a cousin to measuring dividend yield based on the original purchase price of the stock.  If I haven't done so already, I will expose that canard in a later post.

Why would any investor choose to value their portfolio using an arbitrary "rational" standard rather than a "market" standard?

  • No one can disagree with the valuation as there is no standard.  Such investors are always right. 
  • Whether anyone else realizes it or not, the price placed on the stock is the "rational" value and no one can tell this investor differently.
  • It is a dodge to avoid comparison with an appropriate benchmark.
  • The pain of knowing the portfolio performance is worse than the market is avoided.
  • Self-deception is a powerful motivator in the world of investing.
  • It is doubtful such an investor has any Strategic Asset Allocation plan – or even comprehends they might need one.
  • Ignorance is bliss.
  • These investors suffer from The Dunning-Kruger Effect.


The vast majority of investors will value their portfolio at the end of the day with a push of a button.  Prices are downloaded and we know if the portfolio gained or lost value that day.  While it is better not to pay constant attention to the daily market movements, that capacity for knowing how well the portfolio is performing is available. The question remains – performing with respect to what?

In the United States, if someone asks you if the market is up or down, we assume they are asking which direction the Dow Jones Industrial Average moved as it is an old and popular market.  Never mind that it only includes 30 stocks.  Other popular markets are the S&P 500 or the NASDAQ.  For most investors, none of these broad markets are appropriate benchmarks as they leave out investment areas many of us use to populate our portfolios. What do we use as a benchmark?

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Monte Carlo Retirement Calculator

Have any readers heard the example of saving $2,000 per year starting at age 19, and only saving for eight years?  Assuming a return of 10% a year, how much will this individual have at age 65?  Then we take another investor who begins saving $2,000 per year on the year the first investor stopped.  The second investor also is fortunate enough to earn 10% per year.  Keep in mind that earning 10% per year is highly unlikely.  Which investor ends up with more at age 65.  When one prepares such a spreadsheet, it is rather amazing to see investor A, who saved only a total of $16,000 ends up with over a million dollars.  The second investor put away $2,000 per year for 38 years and actually ends up with fewer dollars than investor A.

Strange as it may sound, the second investor, even though the put away many times more than the first investor, will never catch up.  This example is frequently used to emphasize The Golden Rule of Investing.  A similar example comes from Louis Rukeyser and is presented in this Goofus vs. Gallant blog post.

Platinum members are in for a treat with this Monte Carlo Retirement Calculator.

Platinum membership is available for $5.00 per month.  See the special offer just launched and available through July 4, 2011.

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