VNM, EWP, EPI, EWZ - Trading Updates

So I sold VNM yesterday - of course - right after that VNM jumped and ended the day positive. That's fine. It still does not look like that it has turned the corner. I will continue to watch and will re-enter if the momentum changes for the better.

I invested part of the VNM money in EWP - and it has had a good couple days. It is early going so it would need to be watched - but at least it not a dud from the beginning.

I am now watching EPI carefully. It had a big jump yesterday and the uptick continued today. If the positive trend continues until Monday then I will look to take a small 1 unit position.

Lastly, EWZ is still dropping but it above the long term support of around $50. I am fully expecting it to bounce from that level. When that happens I am looking to enter into both a trading position and also a long term buy-and-forget position. I think Brazil will do well in the long term and getting into a position for the long haul at today's low low prices might be a smart move.

Jacques-Louis David's The Oath of Horatii

Investing Rule #2: Keep It Simple

It is very easy to keep adding layers upon layers of information and metrics and rule-of-thumbs and advanced statistics and what not on to the investing decision making process - so much so that you end up in a situation of analysis-paralysis. So much information that it is difficult to figure out signal from noise. Plus, I am not a professional investor - I have a day job and I take care of my money in the time I have left when life gets done with me. So I can't afford to make things too complicated. My solution - Keep Things Simple.

For keeping things simple, I follow some simple, learned over time, rules. First, I only look at closing prices. So no candlestick charts, open-close-high-low metrics for me. I use simple line charts that only plot closing prices. Since I am investing with at least several days to a few weeks timeline in mind, I don't think other price metrics provide me with significantly more information than just the closing price data.

Second, I restrict my universe of technical metrics to a few that I understand well. Currently, I use Moving Averages, MACD, PSAR and RSI - and that's it. Of course there are several advanced metrics - but again - given that I am not likely to have more than say half an hour every day to look at these metrics, I can only focus on a few.

Lastly, and this is something I learned from bitter experience, I have suppressed the urge to doubling down on a bet that does not seem to be working. As I said before, Market Knows Best, so if something is not working, quit. You can also re-enter anytime for the tiny price of a few bucks in trade commission. The surest way to not getting enough sleep at night is to be worrying about the large bet in the market that is not going well. I have been there and it is not a nice place. Instead, quit when things look down and keep your bets modular with each component small enough that you don't lose sleep over it. My golden rule now is - when you enter a stock, always figure an exit price and if the stock hits the exit price then don't hesitate - get out.

M. C. Escher, Drawing Hands, One of my absolute favorite!

VNM Out, EWP In

VNM is not doing as well as I had hoped - it has abandoned any signs of momentum reversal and is now trending down again - so I looking to pull out of it. If I do pull the plug then I will end up with some nominal losses - but there are many great options opening up for spare cash - so no worries.

Update: I got out of VNM and entered EWP instead. Here is the 3Month chart:

My exit point is around $27 - the short term support. For the short term, the momentum seems to be positive - above the moving averages, MACD positive and rising, PSAR moving up, RSI normal.

I will continue to follow VNM as I do think that it is primed for a turnaround. The last reversal was not strong - but it is only a matter of time before a stronger one takes place.

Bernini Asset Allocation

I have no control over how funds in Bernini are invested. However, since it is one of my largest accounts, it is important for me to keep track of what is going on there so that I can adjust rest of my accounts to keep my overall investment mix at a desirable level.

So I searched and unearthed the asset allocation model for Bernini. Here it is:

• US Stocks: 28%
• International Stocks: 25%
• Bonds: 33%
• Real Estate and Others: 14%

If you ask me, this is a very conservative mix and the fund should have more exposure to stocks, especially emerging market stocks. Well - I don't make that decision, and I guess it has been working well so far. They expect to have average returns of 7.6% with the above mix.

What I can do though is to make my other holdings tilt more towards emerging market stocks and away from bonds to balance out my portfolio.

Monet, Red Boats, Argenteuil, 1875 - at the Musée de l'Orangerie

JNK for Regular Income

Today's investment decision - I am buying 2 Units worth of JNK for the account DaVinci.

JNK averages around 7% yield, paid monthly. I am really not expecting any capital appreciation here - just a steady yield.

I intend to hold this for a very long time - so the price chart is not important. Hopefully when I exit this position, I will exit at the same price I went in at. What is important is the dividend history - and here it is - a steady monthly payout at a reasonable rate.

With this trade, my level of available, investable cash is declining rapidly. I now only have 2 units left in Dali. As I like to keep a trade order of minimum 1 unit, I can take short term positions in only two stocks now. Not a bad thing - just that I might come across opportunities and might not have any cash to take advantage of them.

We are talking Da Vinci, so of course, we can't run away from Mona Lisa for too long:

FTE - France Telecom

What do you do with a stock like this? FTE has absolutely fabulous dividend yield (14.2%) - largest among large corporations. A strong market position - and falling prices for more than four years - from almost 40 to around 10 now.

The short term outlook does not seem to be stabilizing - but given its history, one would need more than a little support to go long on this. It will not have another dividend payout for more than 6 months so I am not sure whether the dividend level is a factor in short term outlook.

At the very least, I am going to follow the stock going forward with an intention of going long at least for a short term play and potentially as a long term option given the excellent dividend yield.

Market Knows Best

Following my earlier discussion of INTC, I am reminded of my previous folly of thinking that I can outwit the market. I would see a stock with great fundamentals, that is going down, and would attempt to go against the market. I would win some time but would lose more often.

I finally hit rock bottom while trying to catch a falling knife with amazing fundamentals (low PE, good dividends, great growth prospects). I was so sure in my evaluation of the company that I continued to buy as the stock kept going down. By the time I reached my risk tolerance and got out, I had lost big - BIG. That was the end of my investing based on fundamentals. Since then I got into either do a buy-and-forget or when you trade, trade based solely on price and price history - no other factor - otherwise known as Trend Trading.

Using only price to make trading decisions is not as arbitrary as it sounds. The Efficient Market Hypothesis does state that all the information available to the market is already baked into the price - so there is no sustained advantage to be gained from looking at any other factor. Plus, in today's hyper-information age, the Market as a whole surely has much more information than a single investor, however gifted.

So, buy-and-forget for long term investing; only price based trend trading for short and medium term trading. This seems to be working for now.

Picasso, Guernica

INTC

Intel is dropping like a rock - down 3% today. I have 1 unit invested in INTC as a buy-and-forget. As it is a buy-and-forget, and I don't see a long term problem with INTC, plus the fact that the dividend yield is strong (4.5%); I am not worried.

However, it does feel like we might soon have a great entry point for INTC. There seems to be a strong support around $18-$20 - so if it bounces off of that level then I will consider it as a trend trading target.

This is how its looking right now - a 2 year chart to clearly show the support around $20:

Hokusai, The Great Wave off Kanagawa

Investing Rule #1: Go Along the Tide

It is simple – but it is effective. Do not try to swim against the tide. Market knows best. So, no matter what is your current situation, never:

• Buy when the price is going down, no matter how low the price is
• Sell when the price is going up, no matter how high the price is

You can always wait another day and let the momentum run out. It is relevant today since I wanted to see if I can establish a long position in EWJ and EWZ. Both look good to me – but they are both down for the day at the moment. So – no trade today. 

Vermeer, The Girl with the Pearl Earring

EWZ

I have been following the downward trend in EWZ for some time - looking for a momentum shift so that I could get in. I might be close to that - as the chart below shows:

EWZ has older support at around 50 - so it seems like a good situation to enter. I am going to let it go today and if EWZ is still in the positive tomorrow, then I am getting in with a planned exit for when it breaks the older support. The support can be seen in the 1Year chart below:

Tomorrow will tell us what to do about EWZ. This is a holiday shortened week and I am reluctant to pull the trigger in this short week - it all depends on how convincing the evidence is for EWZ's turnaround tomorrow. Essentially, I am looking for EWZ to have an upward slope in PSAR, be above EMA(20) and have positive MACD.

Manet, Bar at the Folies Bergères

 

Best Credit Cards Ever!

A couple years back, I made a great investment decision. I chose two Fidelity credit cards and started using them for all my credit card spending. The reason I selected them was their unique reward program. Rather than giving me cash rewards, which just get lost in regular spending or points that often are difficult to convert to usable options, Fidelity provides the option of just shifting all the reward points to a Fidelity IRA. You build your retirement nest egg every time you shop! What can be cooler than that.
 

My preferred card is Fidelity Investment Rewards AmEx. It gives a straight 2% cash reward that goes directly to my IRA at the end of every month. I also have a backup Fidelity Investment Rewards Visa since so many establishments, especially smaller ones, do not accept AmEx. The Visa version gives 1.5% cash reward for first 15K in spending per year and then 2% for any additional purchase.

To illustrate, if you spend, say, 3K per month on your credit cards – that gives you a cool $60 per month or $720 per year in your IRA. I have been funneling my cash rewards to my IRA Account: Dali.

Update: Forgot to mention - no annual fee. Plus, they are incredible in detecting and catching fraud. Saved me a lot of trouble recently by catching someone trying to charge my card in a different state. Also - just to be sure - nobody paid me to write this. I am endorsing the product because I use and like the product.

Manet, Olympia

Investment Strategies: Asset Allocation

This is the time tested investment model - decide on an Asset Allocation model and stick with it except for periodic re-balancing. I follow this model for my two largest accounts - ElGreco and VanGogh. More than half of the investment capital in my control follows this model.

I start with a basic Equity-Bond allocation - currently typically 70% Equity and 30% Bonds. I, then, further divide each into several low cost options including Index Funds. Equity is divided into US Equity, Non-US Developed World and Developing World. Bonds are divided into Corporate Bonds and US Treasuries.

I re-balance the portfolio into the benchmark asset allocation ratios once every three months. The asset allocation accounts are performing well this year - in line with the overall market doing well.

Botticelli, The Birth of Venus

Investment Strategies: Buy and Forget

This is the simplest of Investment Strategies that I use - buy something good and forget about it for a long time. Let the market do its magic. Ideally, one would want to buy a growth stock and hold for the growth to materialize. However, it is difficult to pick a good growth stock that will maintain its momentum. So, I am have been a little conservative with my stock selection for Buy and Forget - I have gone for high dividend picks that are market leaders in their industry.

Current I have the following Buy and Forget selections:

• Durer: a 2050 Target Date Retirement Fund
• Klimt: a Fixed Rate Bond Fund, the account is Current
• Bruegel: DEO
• Turner: INTC
• Renoir: VZ

A total of 7 Units. 

It is good to have a part of the portfolio in a position where I don't have to stress over how to manage them. I am looking to transfer over more of my unused cash towards Buy and Forget opportunities - perhaps a more growth oriented choice next time.

Van Gogh, The Potato Eaters

 

ElGreco

I follow the Asset Allocation methodology for this account. The plan provider does not provide very many investment options - so the allocation is among fewer investment options than I would prefer. However, the good thing is that the provider allows for automatic re-balancing every 3 months. So I don't even have to lift a finger in this account - just continue to contribute every month.

Current Asset Allocation:

Bonds - 30% - All in Long Term Corporate Bonds, Current Yield - 4.50%
Stocks -70% - of which, 30% International Equity, 40% US Equity. US Equity portion is equally divided among Large Cap, Mid Cap, Small Cap and Micro Cap indices.

With this, I have written the starting write-up for all of my investment accounts. I will now update these as they change.

El Greco, The Burial of the Count of Orgaz

VanGogh

My pride and joy - my largest account - all of 9 units worth. I follow an Asset-Allocation model for this account. I manually re-balance the portfolio every 3 months.

Current Asset Allocation

40% - Non-US Equity, of which 20% Developing Countries and 20% Developed Countries
30% - US Equity, of which 10% S&P 500, 10% NASDAQ Index and 10% Small Cap
30% - Bonds, of which 10% Long Term Corporate Bonds, 10% Long Term Treasuries and 10% International Bonds

The every three month asset allocation re-balance is driven by the fact that many mutual funds impose an early exit fee for any holdings of less than 90 days. The last re-balance was in late Oct. Accordingly, the next re-balance should be in late Jan 2013.

Van Gogh, Starry Nights

Bernini

It is the employer run Pension system on which I have absolutely no control. I make a monthly contribution, employer matches it. The matching becomes vested after some time. I expect to be fully vested when I leave this employer. Currently the total vested amount is estimated to be 8 Units.

I will update this account with an estimated growth rate and contribution amount. The balance will then be reconciled with the statements that I receive once a year (after a delay of about an year and half from the end of the FY).

Bernini, The Ecstasy of Saint Teresa

 

Durer

These 2 units are invested as a buy-and-forget but of a different kind. I have selected a target date fund for this account - with a 2050 maturity. I intend to just let this money sleep and compound over time. Another bit of diversification.

The Target Date Fund currently is 90% Stock and 10% Bond. Within the Stock part, the 90% is broken into 67% US Stock and 23% International Stock. I feel this is too heavy on the US Stocks - but that's fine. I will let the professional fund managers take care of this one.

Durer, St. Jerome in his Study

DaVinci

A 2 unit account currently held in cash and looking to find a home.

Da Vinci - Lady with an Ermine

Monet

A 2 Unit trend-trading account that is currently holding all cash. I am looking for suitable candidates to invest these 2 units.

Monet's Poppy Fields

Dali

This is a Trend-Trading account. The current holding is VNM.

I entered at $15.65 on 11/15/2012. The current chart is below:

I guess I am betting on a current floor of $15.50. Despite the recent downward trend, it seems to be finding a floor. PSAR is pointing up, MACD is going positive. VNM found a floor at 14.40 an year back.

Currently, I am operating under a very tight exit. I will look to get out at around $15.30. If VNM bounces from the support level of 14.40 - then I will look to get back in - if not then I will look for it to find a more sustainable bottom.

Dali - Persistence of Memory, 1931

Klimt

It has one simple holding - a fixed rate fund. The fund has a 5 year return of 6.45%. It is one of my most conservative holdings - I like the stability of this fund. It is always good to have some diversification - and its good to see stable monthly dividends without any drama.

I am planning to just leave all the contributions in this account in the fixed rate fund. Let them accumulate at 6.45% - not a bad return with virtually no risk.

Klimt - The Kiss, 1908

Bruegel

Another 1 Unit account. Another of my buy-and-forget accounts. This one holds DEO. It has a decent dividend yield (3.00%), a stable business (beta 0.80) and an industry that will continue to stay strong.

I am perhaps least confident of this pick among all my current buy-and-forget holdings. So I am watching it carefully. I will hold as long as long term outlook for the industry and the stock holds.

Bruegel's 1956 Winter Wonderland - Bethlem

Turner

My smallest account. I recently bought INTC for this account under a buy-and-forget strategy. INTC for me is a good mix of a high dividend play (current yield 4.50%) and reasonable growth (PEG 0.80).

INTC has not been doing very well recently. However, I do not worry about short term performance in buy-and-forget holdings. Unless something crazy happens at INTC, I would be holding this stocks for decades - so as long as long term outlook is not in the dumps, I am not dumping this stock.

Turner's 1940 Masterpiece - Slavers throwing overboard the Dead and Dying - Typhon coming on ("The Slave Ship")

Renoir

A small 1 Unit account. It has one simple holding - VZ. It is a buy-and-forget kind of account for me. Unless something terrible happens at VZ, I will continue to hold it.

I selected VZ especially for its high dividend - 5.00% currently. Even if I do not get any price increase, the dividend itself is worth it.

Renoir, Luncheon of the Boating Party

Taking Stock: Starting Point

Here is where things stand (all values rounded to the nearest integer Unit, except for the total). I am giving code names to all my accounts to maintain some level of confidentiality.

Total Investment Portfolio: 37.1 Units

VanGogh: 9 Units
Bernini: 8 Units
ElGreco: 7 Units
Durer: 2 Units
DaVinci: 2 Units
Monet: 2 Units
Dali: 2 Units
Klimt: 2 Units
Bruegel: 1 Unit
Renoir: 1 Unit
Turner: 1 Unit

Details of how I am managing each of the accounts will follow in subsequent posts.

In the first week of each month, I will post a Taking Stock post and update the numbers above.

Defining A Unit

For obvious reasons, I do not want to disclose the amount of my investments. But, I do want to keep some elements of proportion. So, I will detail all my investment decisions in terms of "Units". I might say that I bought 50 Units of SPY. This might mean $2,500 or $50,000 - depending upon whether a Unit is $50 or $1,000.

The exact value of a Unit is, of course, a secret.

Here We Go Again!

Hello World!

This is going to be a repository of my investment decisions and an archive of the evolution of my investment approach.

I am hoping that this journal will force me to be more consistent and allow me to learn from my investment mistakes.

Hoping for a great journey ahead, here is one of my favorite paintings - Rain, Steam and Speed-The Great Western Railway by William Turner in 1844.