Maxwell Portfolio Review: 9 July 2012

The Maxwell Portfolio Review time is here again.  Developed international markets (VEU), emerging markets (VWO), and commodities (DBC) are still priced below their 195-Day Exponential Moving Averages so those asset classes will remain under target.  I made an error of purchasing shares of small-cap blend (VB) when I meant to buy shares of mid-cap blend (VO).  That is the reason small-cap blend assets are over target by 7.5%.  Those two asset classes are highly correlated so I am not worried about the imbalance.  I failed to check the latest purchases in the broker account so I missed a limit order that was struck for VB since the last update.

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Bullish Percent Indicators For Sectors Is Positive

Just as the Bullish Percent Indicators are positive for the six indexes, the same is true for the ten sectors.  All showed gains over the past week and two switched from defense to offense.  Check the right side of the table shown below.

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Requirements For Selecting A Money Manager

What To Look For When Selecting A Money Manager

While I am a strong advocate of "do-it-yourself" investing, there are situations were a money manager is useful.  How does one select a manager?  Here are a few suggestions.

1.  Seek a trusted friend and ask them who they use as a money manager.  Ask around.

2.  Is the manager certified?  In "The Bogleheads' Guide to Investing" there are nearly two pages of professional designations.  Look for someone who has passed the Certified Financial Planner (CFP) exam.

3.  Don't use a stock broker as a money manager.  There is a conflict of interest between giving advice and selling stock or actively managed mutual funds from the brokerage house.

4.  Look for a fee based only manager.

5.  If the manager is going to charge a percentage of the money managed, check the rate schedule.  The larger the amount of money under management, the lower the percentage.  Be wary if the percentage exceeds 50 basis points or 0.50% per year.  If the fee is 90 or 100 basis points, look elsewhere for a manager.

6.  What kind of reporting is provided?  If the manager is unable to provide Internal Rate of Return (IRR) results for the portfolio, look elsewhere.  The TLH spreadsheet, when used properly, provides this information.

7.  Ask the money manager what they are using as a portfolio benchmark?  Is the benchmark customized to fit the portfolio?  If not, why not? The TLH spreadsheet provides this information.

8.  Will the money manager work with you to build a portfolio that will meet your risk requirements?  Once more, the TLH spreadsheet will not only provide portfolio volatility information, but will do it using a semi-variance calculation where only the downside volatility is of concern.  For more information research the Sortino Ratio on this blog.

9.  Before you hire a money manager, read a few of the Top Ten Investment Books recommended on this blog.