Current State of ITARR ETFs

Platinum members paying attention to the ITA Risk Reduction model will note that the prices of three of seven critical ETFs moved above their 195-Day EMAs.  Those ETFs are listed below with the link to the critical graph.

[Read more…]

Asset Allocation for IRA Risk Reduction Portfolio

What does the asset allocation plan look like for the ITARR style portfolio?  Below is the current Dashboard for the Euclid, one of the risk reduction test portfolios.  The target percentages have the white background and the actual percentages currently held in the Euclid have colored backgrounds. 

Depending on how the basic ETFs close today, this portfolio will undergo major changes tomorrow.  Checking ETF prices moments ago, only VTI is priced above its 195-Day EMA.  IGE and VNQ are very close and could easily close higher by the end of the session.  Regardless of price changes, I need to reduce holdings in Large-Cap Blend.

Had this portfolio been correctly positioned this morning, all assets would either be in cash, TLT, or TIP as all the key ETFs opened up this morning with prices below their respective 195-Day EMAs.

In the following screen shot we have the QPP analysis for the ITA Risk Reduction portfolio when fully invested in the market.

[Read more…]

Expecting Market Volatility and What To Do About It

If you need additional evidence that we are in a season of volatile markets, check out this Portfolioist article.  Recognizing that market ups and downs are not about to leave us very soon, what are some options available to investors?  How can we temper daily market moves of 2% or more?  Risk reduction is becoming more and more important.

A few days ago, I had reason to pull William J. Bernstein's book, "The Intelligent Asset Allocator" off the shelf.  Bernstein's first book continues to be one of my favorites. In the introduction, Bernstein lays out a six point Road Map for investors.  It is well worth quoting these points for ITA readers as they are general in nature and to the point when it comes to monitoring portfolio risk.  Here are Bernstein's six points and I quote.

  1. Take a deep breath, and do nothing for several weeks or months, or as long as it takes to complete the following steps.  You are in no rush to immediately and radically alter your finances.  You have the rest of your life to get your affairs in order; the time you take learning and planning will be time well-spent.
  2. Acquire an appreciation of the nature of and fundamental relationship between risk and reward in the financial markets.
  3. Learn about the risk/reward characteristics of various specific investment types.
  4. Appreciate the diversified portfolios behave very differently than the individual assets in them, in much the same way that a cake tastes different from shortening, flour, butter, and sugar.  This is called portfolio theory and is critical to your future success.
  5. Estimate how much risk you can tolerate; then learn how to use portfolio theory to construct a portfolio tailored to produce the most return for that amount of risk.
  6. At this point you are finally ready to purchase individual stocks, bonds, and mutual funds.  If you have succeeded in the above tasks, this is by far the easiest step.

Note how many of the above six points include risk.  Warnings or education related to risk is included in points 2, 3, and 5 where 2 through 5 are the critical guidelines.

Points 1 and 6 are fundamental to this blog while 2 through 5 are constantly in our risk management endeavors. If risk management and market volatility are current points of pain, what "Advil" can be taken to smooth out the rocky road.  Here are my suggestions.

[Read more…]

Curie Portfolio Review: 29 November 2011

These portfolio reviews roll around faster than one might expect and this morning is the time to reexamine the Curie Portfolio. Checking over the Dashboard (worksheet from inside the TLH Spreadsheet) is the first order of business.  Readers will quickly see that this portfolio needs some attention.  I've yet to make a firm decision on whether to continue allocating any percentage to mid- and small-cap blend classes.  My inclination is to change the Strategic Asset Allocation (SAA) to zero percent for these two asset classes and purchase IWN which would shift a greater percentage to small-cap value.

While it is appropriate to set up a new SAA plan, I do not anticipate buying any ETFs until they move from below to above their respective 195-Day EMAs.  Even with the nice move yesterday (11/28/2011), most of the ETFs I use are still well below their long-term EMA.

Look for some changes in this portfolio the next time it comes up for review.

[Read more…]

Precious Metals and European Crisis

Precious Metals React Badly to European Crisis

In times of economic uncertainty, a wise investor would hedge their market bets with silver and gold in hopes of a future payday. They would either buy precious metals in bullion and coins or invest in stocks related to precious metals, like mining stocks. Historically, precious metals are considered "safe havens" when the stock market may be fluctuating wildly, but recently that wisdom has been turned upside-down with the European debt crisis. If the same adage still held true, then precious metals investing would be on the rise and prices would be rising. But, instead, the market is showing baffling signs that investors are actually dumping their precious metal holdings due to scares over the Eurozone.

Dollar Strength

Investing in precious metals is still a good move in the long-term, but in the short-term the dollar's strength in comparison to the plummeting euro has investors thinking twice. This makes the dollar a very attractive alternative to gold and silver as it provides a high degree of liquidity, too. People who invest in silver and gold have experienced large gains over the last decade and many are taking their profits now and then converting to cash and holding for a little while longer. In the short-term this type of profit-taking is a good idea, but in the long-term you may see these same investors re-investing in precious metals as the price drops to make them attractive buys once again.

What Happens in Europe Spreads

With global economic dynamics, investors react much more quickly to news overseas. They understand that a crisis that appears to be far way, in economic terms is right next door. There are so many new ways to play the market that even when precious metal commodities are the safe haven of choice, investors seek out new options that will leverage gains and reduce risk to their investment portfolios so that they can profit quickly and bank their wins.

- Guest Author (Jen)

Development of New ETF Indicator

I am currently working on a multi-variable measurement for ETFs to determine if they are positioned to Buy, Hold, or Sell.  This is in addition to the "Delta Factor" and I am trying to decide if the "Delta Factor" should be one of the variables to include in this new indicator.  Without going into the specifics, here is the general idea.

[Read more…]

Positioning the Maxwell, Euclid, and Madison

In preparation to launch the ITA Risk Reduction model for the Maxwell, Euclid, Madison, and possibly one or two more portfolios, the basic asset allocation is laid out below.  SDS is shown only as a possibility in unusual circumstances.  The percentages as shown apply only when the ETF price lies above its 195-Day Exponential Moving Average (EMA).  Such is not the case right now as all investments are priced well below their EMAs.

[Read more…]

Christmas CD Recommendation: Songs of Angels – Robert Shaw

Songs of Angels featuring the Robert Shaw Chamber Singers is my recommendation for the week.  This early recommendation gives readers time to order and enjoy during the Holiday Season.  When it comes to vocal singing, nearly anything by Robert Shaw is a plus.  This CD is no different.  I selected the following review to spur more interest.  If you have any doubts about this recording, read more of the reviews on Amazon.

"When I bought this album, I was looking for a classic Christmas album for a small ensemble. This fits the bill admirably. The music, arrangements and performers are all of the same caliber as Shaw's other recordings (such as The Many Moods of Christmas) but here we have the intimacy of a small ensemble, much more fitting to the music than the massive forces of the Atlanta Symphony Chorus.

The arrangements are by Alice Parker and Robert Shaw, dating from the 1950's. We also have a number of magnificent solo voices, which are absent from the Robert Russel Bennet arrangements. The soloists are superb.

If I had to pick a single Christmas album to see me through the holidays, it would be a difficult choice, but this would certainly be on my short list."

Portfolio Management Suggestions

Before outlining portfolio management suggestions, I'm assuming ITA readers have a savings and investment plan in effect.  For saving suggestions, search for "The Golden Rule of Investing" and related topics.  There are a number of blog entries related to preparing for retirement, and the earlier one begins retirement planning the better.

After establishing a savings plan, write down your investment plan.  One place to begin is with the Dashboard worksheet contained inside the TLH Spreadsheet.  Develop a Strategic Asset Allocation (SAA) plan.  Laying out a plan does not mean it is chiseled in granite.  The idea is to begin with a plan and then continue to learn if changes are necessary. 

"You Cannot Manage What You Do Not Measure"

What are my portfolio management suggestions?

[Read more…]

Portfolio Performance: 25 November 2011

The weekly performance data is presented in the table below.  While it was another down week on an absolute scale, most of the portfolios performed rather well.  Only the Einstein lost ground with respect to the VTSMX benchmark.  Those holding even were the Schrodinger, Kepler, and Bohr.  Portfolios that picked up at least a tenth of a percentage point on the VTSMX were the following: Curie, Newton, Kenilworth, Franklin, Maxwell, Euclid, and the Madison.  The latter three are those where we are in the process of activating the ITA Risk Reduction model.  The ITARR is not yet in full effect.

Click on the title to expand the data table.

Portfolio Performance - 11/25/2011

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 10/31/2011 07/21/1999 Captool 2.35% NA NA 2.0% 0.35% 0.05 NA NA
Curie 11/25/2011 12/26/2007 TLH SS 2.0% -3.4% 5.4% -1.9% 3.9% NA 6.8 -5.1
Mosaic2 10/31/2011 07/19/1999 Captool 4.62% NA NA 1.84% 2.78% 0.16 NA NA
Newton 11/25/2011 06/02/2008 TLH SS 5.4% 0.9% 4.5% 2.6% 2.8% NA 2.1 -0.4
Passive Port. 10/31/2011 12/01/2000 Captool 4.5% NA NA 2.22% 2.28% 0.68 NA NA
Schrodinger 11/25/2011 12/01/2000 TLH SS 3.5% 1.0% 2.6% 1.8% 1.8% NA 14.9 -11.3
Jane 10/31/2011 02/14/1997 Captool 8.46% NA NA 5.24% 3.22% 0.54 NA NA
Einstein 11/25//2011 06/30/2008 TLH SS 6.7% 3.4% 3.3% 5.0% 1.78% NA 0.7 0.3
Gauss 10/31/2011 02/19/1997 Captool 8.61% NA NA 5.2% 3.4% 0.23 NA NA
Kepler 11/25/2011 11/01/2008 TLH SS 102.1% 9.5% 0.6% 10.9% -0.8% NA -0.29 -0.29
Scrappy 10/31/2011 08/14/2008 Captool 8.96% NA NA -0.35% 9.31% NA NA NA
Bohr 11/25/2011 08/14/2008 TLH SS 5.9% 5.2% 0.7% 0.8% 5.1% NA 2.8 0.6
Kenilworth 11/25/2011 08/18/2010 TLH SS -7.1% -8.3% 1.2% -5.2% -1.9% NA -0.01 -0.09
Franklin 11/25/2011 05/6/2011 TLH SS -15.4% -22.2% 6.8% -23.0% 7.6% NA 0.05* -0.13*
Projects 10/31/2011 12/01/2000 Captool 5.04% NA NA 2.22% 2.82% 1.26 NA NA
Washington 10/31/2011 06/18/1999 Captool 2.89% NA NA 2.03% 0.86% 0.28 NA NA
Maxwell 11/25/2011 12/25/2000 TLH SS -0.7% -2.0% 1.3% 2.4% -3.1% NA -0.10 -0.18
Adams 10/31/2011 06/18/1999 Captool 3.5% NA NA 2.03% 1.47% 0.73 NA NA
Euclid 11/25/2011 06/30/1999 TLH SS 0.5% -15.4% 15.9% 2.3% -1.8% NA -0.08 -0.20
Jefferson 10/31/2011 06/13/2006 Captool 4.79% NA NA -0.36% 5.15% NA NA NA
Madison 11/25/2011 03/13/2008 TLH SS -1.8% -8.4% 6.6% 2.6% -4.4% NA -0.18 -0.27

SR = Sortino Ratio

RR = Retirement Ratio

IR = Information Ratio

Differences are rounded to the nearest 0.1%