Hello,
Part of my investment strategy is to adjust my equity allocation as stock valuations move upward and downward and cycle into overbought and oversold conditions.
Since the S&P 500 Index has now closed above 1500, I have begun the process to reduced equities. In the near term I have targeted another reduction at S&P 500 Index 1525 and another one at 1550, 1575 and 1600 should the Index reach these levels in the near term. Once the process is complete the total reduction is projected to be in the five percent range. I anticipate the portfolio will then bubble at about 20% cash, 25% fixed, 45% equity and 10% alternatives should the Index make it to the 1600 mark.
This was done because I believe that stocks have now cycled to an overbought condition. This does not mean that stocks will not continue an upward advance as the over enthused and the under invested rush to get money into equities. From my thoughts it is going to take some more fuel for them to continue to advance on a solid footing and corporate earnings are not as good as perhaps some believe. To support this, I have linked below a recent blurb by Zero Hedge that explains this in more detail.
http://www.zerohedge.com/news/2013-01-25/q4-earnings-season-far-worse-most-suspectFor those that might wish to review information on a fund that sets it stock and bond allocations to the price level of the S&P 500 Index ... I have linked below some information you might find of interest.
https://www.columbiamanagement.com/content/columbia/pdf/LIT_DOC_9E00B57F.PDFAnd, the Morningstar report ...
http://quote.morningstar.com/fund/f.aspx?Country=USA&Symbol=CTFAXGood Investing,
Skeeter
Comments
I moved ~8% from short term bonds to equities at the beginning of December and have starting to pull back as we approach the 1500 mark in the S&P 500. One reason for reducing this money is because in your past posts you stated 1500 being an inflection point for you. The other reason is because of the likely political turmoil that will again be upsetting the markets in the near future.
Take care and thanks again for your updates.
Thank you for your kind words.
This ivestment style goes back years to my late father where he would buy stocks that he followed when they were at a seasonal or 52 week low and then sell them off when they appreciated usually towards a 52 week high or seasonal high all along while he collected the dividends while he owned the shares.
He did not do this with his whole portfolio; but, would do it with enough where the profits were meaningful to our family and it provided for a little extra. Just as it is today.
As you can see pops old strategy is still in play; but, I usually do it with an equity index or diverisified mutal fund and not individual stocks. Sometimes, I'll keep a ballast fund and let a core position go if I feel that it is not performing to my expectations. In this way, I can thin the herd so to speak while at the same time performing the rebalance process.
Thanks again for your comments.
Skeeter
If I might ask - where will your 45% equity portion originate? Any overweights by sector or region? I ask because I feel the current excitment over US equities will be short lived and there are no obvious alternatives.
I ask because I have let my share in equities dwindle and wish I had up to a 10% greater share allocated there but just can't get excited about any region or sector.
Thanks for the above & any additional thoughts you (or others) have.
Rbrt
I am not sure exactly how to respond to your question … but, here is my comment on positioning and a look at the holdings within my portfolio.
I own a lot of stuff in my well diversified portfolio. I like to think of it from this perspective. Picture a clock face that has a twelve hour period. As the clocks hands move they sweep through a time period and during this time sweep each hour becomes in fashion so to speak while the others are not. To me this is much like investing as at certain times certain assets are in more fashion than others as the markets cycle. With computerized trading the fashion asset can quickly become the darling, or step child, of the bunch for no apparent reason other that a computer sniffed out movement and the other computers follow suite and bid the price of this asset upward or downward. So what one perceives may or may not become an in fashion asset. That is why I own a great number of funds that play many different angles in many asset classes and some that can move most anywhere they are finding value.
With this, below is a list of funds that I own in my taxable account, my IRA account, my 401k account and my health savings account.
Fixed Income: LIGRX, LALDX, NEFRX, THIFX, STIAX and TPINX
Hybrid Income: CAPAX, FKINX, NEFZX, ISFAX, PASAX and PGBAX
Growth & Income, Global Equity: CWGIX, DEQAX and EADIX
Growth & Income, Global Hybrid: CABIX, IGPAX and TIBAX
Growth & Income, Domestic Equity: INUTX, SVAAX, SPQAX, FDSAX, ANCFX and NBHAX
Growth & Income, Domestic Hybrid: AZNAX, DDIAX, FRINX, AMECX, JPVAX, LABFX, LWSAX and ABALX
Growth, Int’l and Global: PGROX, ANWPX, THOAX, NEWFX, ODMAX
Growth, Domestic Large/Mid: VADAX, IACLX, AGTHX and SPECX
Growth, Domestic Small/Mid: PCVAX, PMDAX, IIVAX, and KSDVX
Growth, Specialty: JCRAX, LPEFX, MFLDX, PAUAX, WASAX and CTFAX
Under Review: SDUAX, PONAX, PIXAX, PCKAX, PQIZX, UTLAX, TOLLX, MMUFX, IBALX, FBLAX, JALMX, JDBAX, CREAX, KDSAX and THDAX
I hope this peek at my holdings and the ones that I have under review for possible purchase provides you with some insight that you might have been looking for.
Skeeter
Regards,
Ted
Thanks for stopping by.
Perhaps so from some perspectives ... but, hey it seems to work for me.
Have a great day,
Skeeter
On your rebalancing inquiry: This is a reduction in equity only and I am not trying to rebalance each fund held.
Rebalancing is very simple as I reduce my position in some or eliminate the entire position. Take the Growth Area, Domestic Large Mid, it use to have six funds in that area. In a prior rebalance, I eliminated AMCPX when I reduced equities that I held in my 401k. This go I’ll be getting into some of the other areas although I’ll be giving AGTHX a sizable lick since it is one of my larger positions; and, it will get trimmed but not eliminated. Most likely, some funds in the Growth & Income Area will get trimmed too; but, we will have to get to 1575 to 1600 in the near terms before I venture into this area.
I listed the A share class for each fund owned which is ok for me tracking what I have. However, in my 401k, for instance, I hold other share classes for the respective funds listed, I think most of them are R shares.
I’ll do most of the rebalance process in the 401k and my IRA as this will avoid paying taxes on the gains harvested. I do like making the health savings account grow. So, I most likley will not be doing any reductions or cutting its sole holding which is a balanced fund.
It is really not that hard to do ... The hardest part is to pick the funds to trim from or even eliminate. And, I have already selected AGTHX to reduce its size as it is the largest position in the Growth Area, Domestic Large Mid.
Skeeter
I know that there are many that like to manage less funds. Being a former corporate credit manager of a large distribution company years ago I learned quickly techniques to manage large account positions in both size and numbers. This is no different. In short words ... I'd rather have my account risk spread over many than a few.
Many of the positions that I own have been held for many years, some twenty plus, so when you spread the sales load and other fees over that time span my thoughts are that I actually come out better than buying another type fund and paying higher fees but with no sales load. Today, many of my purchases are load waived because of the size of the portfolio. Other purchases within my 401k and health savings account I have no control over and have to purchase what is offered.
Skeeter
What is more important and what will contribute most to Skeeter's overall returns will be his portfolio balance using his valuation criteria. Not the number of funds he holds. At least in my sometimes less than humble opinion
Thanks again Skeeter.
Specifically 24 unique funds are spread over 5 accounts compromising 68 positions at the moment (excluding cash which is very small if any). Top 10 funds make 62% of the portfolio. If I include one more fund to cover all funds above 4% allocation, I have 66% of the portfolio in 11 funds. Largest fund has about 9% allocation. These accounts belong to me and to my wife. I consider the totality of these accounts as the retirement portfolio.
I tend to own the very same funds in different accounts so the total number of positions is much more as a result. I also like to maintain similar asset allocation in most accounts.
The smallest account has only one fund. My largest account is my Rollover IRA which has 21 mutual fund positions but has several one off funds that are not shared by the other accounts. A few are small positions that I maintain because the fund is closed and I might choose to increase to a significant allocation in the future if necessary. A couple funds are only available NTF in a particular broker so it is not possible to own the same fund in all in those situations and I have different funds. A couple are intended to be short term trading positions.
For actively managed funds I would like to spread the manager risk to several funds. This also contributes to the larger fund collection. If one is mostly using index/passive funds there is probably no reason to do this. If I were a purely index investor and covering the same asset classes, I could reduce the number of funds to may be around 10-12.
Anyway, what I am trying to say that I understand how one can end up with large number of funds. With online access to the accounts it is really not that difficult to manage these days.
Having said all that I intend to reduce the number to 20.
Thank you for your comments not only for those that are contained in this post but on the many other post I have made in prior years.
As investors, we all have to do what we feels is best. When I statrted investing in the mid 70's most of the murual funds were sold only through brokers. The first stock I owned was Duke Power (DUK) now Duke Energy and the first mutual fund I owned was Franklin Income Fund (FKINX). Looking back, I think I made good choices even though I paid a commission on the buy of both of them. I have no regrets in doing this and I feel at the time this was most appropriate. I have never had a problem to compensate others for their labor. I know I expect to be compensated for mine.
I wanted you to know that your comments have been appreciated now and will be in the future. I always state my perspective and respect what others have to say even though it might be the path I have chosen. Hey, if it works ... that what should matter.
I wish you the very best with your investing endeavors ... and, again thanks for stopping by.
Cordially,
Skeeter
Indeed, when Skeeter announced that he had roughly 50 separate mutual fund positions I was initially shocked. On first reaction that seemed like an unnecessarily huge number that carried a praiseworthy diversification goal to an unwarranted extreme. At some point, the law of diminishing returns must be evoked.
That quick reflexive reaction represented my own bias towards simplification; that’s my problem and surely not Skeeter’s. I do not have the patience, the endurance, or the time to monitor such a vast array of holdings. Apparently Skeeter has mastered a disciplined approach that permits him to do so. More power to him and his organizational skills.
I admire his operational rule that addresses the issue of buying high under euphoric conditions and selling low under panic conditions. Given his current cash reserves, he protects the option to buy during any protracted market downturn without sacrificing much in the way of lost “opportunities” given the present low interest rate structure.
In a sense, he is applying Jason Zweig’s fun observation: “If we shopped for stocks the way we shop for socks, we’d be better off”. Buying at a discount when the market momentarily falls is attractive for most investors, except perhaps for most retired folks. Although retired myself, I keep an extra cash war-kiddy for just such buying opportunities.
With some deeper self-examination I came to understand how Skeeter’s portfolio morphed to such proportions. Engaged market players who participate in the active mutual fund management arena need extra exposures to experiment, to more broadly diversify because of category subdivision, and to protect against increased downside risk because of disappointing and underperforming active managers.
Remember that active managers underperform their passive Index managed counterparts by approximately 60 % annually, and by roughly 80 % over extended timeframes. These percentages reflect the number of funds that underperform, not any returns. The large number of active holdings serve as a form of insurance.
Given all that, 50 is still a huge number that must be a time sink.
By way of honest disclosure, my rather large portfolio peaked at 23 mutual fund/ETF holdings a few years ago. During that period, my portfolio was mostly in actively managed products. Since that peak, I have decided to invest more passively, not more conservatively. I currently hold 17 fund products with a plan to reduce that number to below 15. I do not expect to ever get that number below 10 since I will maintain a small fraction of my portfolio in actively managed funds. I enjoy the hunt for excess returns.
I am a little surprised that no one has commended Skeeter on his incremental strategy as he executes a transition from one portfolio allocation to another. Like Skeeter, I too try to implement investment decisions incrementally; these decisions are never done with absolute certainty so caution over time is worthwhile. Spread the risk over time.
But I am puzzled by the very small changes being made. Skeeter apparently uses a microscope when studying his asset allocation. My scale is nowhere nearly so refined. For me, a few percentage change in asset allocation is noise level stuff. Typically, I do not rebalance until my asset allocation in equities exceed a 5 % deviation. I do not allow nominal return volatility trigger any trading event.
I’m sure we all have different action trigger points. And guess what, each is independently correct for everyone of us. That’s an efficient, egalitarian marketplace. It works.
Best Wishes to All, especially to Skeeter who showed extraordinary courage and resilience on this matter.
Thanks for stopping by.
One of the great things about investing is that there is no one right way, or wrong way, when it comes to investing. We all have to come to a realization that encompasses many things. I believe that one of the most important things is that one must have confidence is how they are managing their invested assets and not over extend themselves beyond their means and capabilities.
From reading my post over the years you have learned a great deal about me and how I approach things and even how I reduced risk at the dog track usually leaving with more money in my pocket than when I came with. You are much more analytical than I am and I am more apt to shoot form the hip at times if I feel good about an opportunity. I don’t have to know everything there is to know about it to move forward on it. However, I have an exit strategy and pretty much know the downside before I make a move.
I think what is important with investing is that you take more from the market than it takes from you. For those that are capable of doing this then that is success. Some of my investment strategies are so simple that because they are not modern day high tech driven strategies they are just not good enough for some. But, they have a history of good results through the years for me and that what is important.
I try to share with others what I am finding success with not saying they should jump in as they should do what they feel is best for them and within their resouurces and their capabilities.
Take care and thank you for your comments as they were most appreciated.
Cordially,
Skeeter
Hi Investor,
Thanks for your response; it will allow me to expand on what I define as cash.
I use a loose, non-academic definition for what I classify as my cash holdings; it is definitely not rigorous from a portfolio management perspective since it does accept some hopefully limited downside risk. The devil is always buried in the details.
I own very little bank cash or money market accounts. The predominant portion of what I call Cash, and is available as my war-kiddy, is invested in a short-term corporate bond mutual fund. Many offer immediate access with very little (pennies per share) risk. For years, I have used these resources successfully for emergency purposes.
Since you are well aware of my proclivity for low cost, conservatively managed financial products, it will not surprise you that I selected Vanguard’s short-term investment grade corporate bond fund (VFSUX) to fill that requirement.
It has served me consistently well, although I did resist withdrawals just a little during the 2008 market downturn. Nothing in the investment universe is absolutely perfect. But the long-term accumulated rewards greatly exceed a few difficult encounters and infrequent penalties.
Best Wishes.