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Since the last time I wrote about activity in my wife's tiny IRA, enough funds had accumulated from dividends to make a small purchase. I decided that the funds were too small to try to initiate a new position in her account, so I needed to pick one of her existing positions to which to add some fresh shares.

Of course, to figure out where to spend the accumulated dividends, I used her worksheet on my copy of the My Mad Method [MyMM] spreadsheet. Here are her current positions, and their percent allocations relative to the total value of her portfolio prior to the purchase I made this month:

BP plc

(BP)

7.24%

The Clorox Company

(CLX)

9.77%

Crescent Point Energy Corp

(CSCTF.PK)

13.63%

Cablevision Systems Corporation

(CVC)

4.85%

NTT DoCoMo, Inc.

(DCM)

4.97%

Kinder Morgan Management, LLC

(KMR)

10.19%

Linn Co., LLC

(LNCO)

8.10%

McDonald's Corporation

(MCD)

13.66%

American Capital Mortgage

(MTGE)

8.01%

Republic Bancorp, Inc. - Class A

(RBCAA)

8.16%

Westar Energy, Inc.

(WR)

10.31%

She currently holds 11 positions in her IRA, which results in a "parity" value of 9.09% for percent allocation, which is simply 1 divided by 11. This parity value is a target I use to try to keep our IRA portfolios "in balance" as much as possible so that no single position presents too much of a risk to the overall total value should something unexpected and untoward happen to it.

Looking at the numbers above, you can see that some of her existing positions are above the parity target of 9.09%, while others are just below it, and some others are well below it. Since one of my goals is to keep her IRA "in balance" in terms of percentage allocation, I decided to narrow the list of possible stocks to purchase by eliminating all of the positions that were at or above parity.

Here are the candidate positions, and their MyMM rankings relative to each other:

Orig

Weighted

Delta

MyMM

MyMM

MyMM

Ratio

Rank

Avg

Rank

Company

Ticker

Reading

4

7.8

6

BP plc

BP

Too High

3

5.6

2

Cablevision Systems Corporation

CVC

Too High

1

5.3

1

NTT DoCoMo, Inc.

DCM

Too High

6

6.2

3

Linn Co., LLC

LNCO

Buy!

5

7.1

4

American Capital Mortgage

MTGE

Falling

2

7.2

5

Republic Bancorp, Inc. - Class A

RBCAA

Stable

You'll note that there is an "Original MyMM Rank" and a "Weighted MyMM Rank". For this round of buying, I weighted her list of positions by applying a 30% weight to the following metrics:

  1. Yield
  2. 5 Year Dividend CAGR
  3. Percent Allocation

Because I've set the weighting percentage of the metric "BMW Return Factor" to zero, effectively removing it from the list of metrics I use to calculate MyMM Ranks, which gave the three metrics above a weighting factor of 4.80, while the remaining 13 metrics retained a weighting percentage of 6.25% which resulted in a weighting factor of 1.00.

With an Original MyMM Rank of 1 and a Weighted MyMM Rank also of 1, the obvious choice for where to buy new shares is DCM, right? Well, not so fast.

DCM has a Delta Ratio Reading of "Too High", indicating that the recent price was more than 20% above the average of the 52 Week High and 52 Week Low price of that stock, while LNCO has a "Buy!" Delta Ratio Reading, which indicates that its recent price is much closer to the 52 Week High and Low average. However, LNCO's Weighted MyMM Rank is 3, while its Original MyMM Rank drops down to last place out of the group of 6 candidate stocks that are all below parity. Also, its current percent allocation of 8.10% is pretty close to the parity target of 9.09%, which is closer to parity than some other options.

Looking at other possibilities we find CVC, which has an Original MyMM Rank of 3, a Weighted MyMM Rank of 2, and the lowest percentage allocation of all of the stocks in my wife's IRA. This is where you don't want to put too much emphasis on just the Delta Ratio Reading, which in CVC's case is "Too High"; you need to look at the 52 Week High-Low average and compare it to the recent price, to see how far away from the average the recent price is, and whether that trumps your other selection criteria.

However, all three of these options, DCM, LNCO and CVC, are pretty close based on all these criteria. So what was the deciding factor in picking one of them to buy? Ex-Dividend Date.

The Ex-Div Date of DCM (which only pays dividends twice a year anyway) was back on March 27th, and the Ex-Div Date of LNCO was May 5th, which had already passed as well, while the Ex-Div Date of CVC was coming up in mid-June (June 13th, to the best of my ability). So in the interest of getting the most income for her bucks, I chose CVC as the company of which to buy more stock for my wife's IRA this time around.

This brought CVC's percent allocation up to 5.97%. Not a huge jump up, but one step closer to parity for one more stock.

So what's next for my wife's IRA? Well, I'd like to make a quarterly contribution of $1,625.00 to her account (she's over 50, so she's allowed the maximum for this year of $6,500 in contributions to her IRA), but we've had some unexpected expenses crop up in recent months, and I need to see how a few things shake out. It's within the realm of possibility that I could make half of a quarterly contribution to her account before the end of this quarter is out at the end of June, in which case I will have to decide between splitting it up amongst the existing positions that are still below parity, or picking up a decent sized portion of a new, 12th position. If I pick up a new position, that would bring her target parity number down to 8.33%, which benefits all of the positions that are below parity in terms of getting them all closer to parity. I'm pretty sure I know what I'll be doing, but a lot can change between now and then.

(Like, what happened to "Sell in May, and then go away", anyway?)

When enough dividends have accumulated in her account again, or if I decide that our budget can afford a half or a whole quarter's contribution to her account, I'll let you know again what I've done to manage my wife's IRA.

Disclaimer: I am not a professional investment advisor or financial analyst; I’m just a guy who likes to crunch numbers and can make an Excel spreadsheet do pretty much whatever I want it to do, and I’m doing my best to manage my own portfolio. This article is in no way an endorsement of any of the stocks discussed in it, and as always, you need to do your own research and due diligence before you decide to trade any securities or other products.

Source: My Wife's IRA: What Next To Buy, And Why? - May, 2013