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I am the CFO for a closely held 100 year old bank. Job duties include management of the investment portfolio and Asset / Liability management of all assets and liabilites.

    Asset allocation plays a substantial role in the performance of your portfolio. It is probably the largest factor in determining how you will perform. This year is a good example of the importance of asset allocation as long term treasuries have returned 12.4% as compared to 4.8% for SPY. This is a huge difference! It is easy to see how income portfolios have performed better than growth portfolios during 2014. Did you capture this additional performance? Maybe or maybe not. I want to write about a technique I use to try and improve asset allocation performance. I have used this technique for a good while with good results. I would like to track it here to see if it really improves performance.

    We currently have three strategies we are using. A growth, income and aggressive growth strategy. You may combine these any way you see fit. You could allocate a fixed percentage to each strategy or you could graduate your allocation to each fund to try and improve performance. I will try to graduate allocation so the portfolio is more profitable than the standard 60/40 portfolio. To do so requires a two step process.

    The first step is to rank each of the 7 funds we hold based on relative price performance. I do this by calculating the one month and 6 month price performance of each fund. Note that I consider BRK-B a fund when it really is not. I add the one and six month performance and divide by 2. This gives a relative price strength that considers recent and longer term performance. I may change this as time passes.

    Step 2 is to determine the graduated allocation to each fund for the upcoming month. There is no magic in the numbers I use however the logic is to allocate more to the better performing funds and less to those with weaker performance. The graduated allocation I will use this month is 20% to VNQ and NPI each, 15% to JPC and RPV each and 10% to VCLT,EPP and BRK-B.

    I will track performance of this portfolio mixture and adjust monthly or as needed.

    Disclosure: I am long RPV, NPI, VNQ, EPP, JPC.

    Jun 01 11:49 AM | Link | 9 Comments
  • SSO Versus BRK/B

    I was reading comments about the 2013 annual report for Berkshire Hathaway when a light bulb went off and I decided a good growth strategy could be possible using BRK/B and SSO. It works like this. You calculate 3 month relative strength for SSO and BRK/B on the 15th and 31st of each month (or closest business day). The investment that has the highest relative strength is the investment chosen for the next period. If the investment chosen is not above it's 300 day moving average the monies go to cash. Simple enough.

    The reason I decided this strategy could have potential is because of comments made by Warren Buffet. He stated he would actively purchase shares of BRK/B if the market price dropped below 120% of book or something of this nature. In essence, he has put a floor on Berkshire stock which is not to far from current market price. Therefore , this strategy has the potential for a lot of upside and not a lot of downside. Of course, WB could let the price of BRK/B fall well below 120% of book and this is why we have the cash option if investments fall below their 300 day average.

    This is a new strategy for me. Recent results would have been very favorable based on market performance but we all know past results are no guarantee of future performance. Anyone who accepts financial advice from annoymous sources without doing their due diligence deserve what they get. That is my disclosure.

    Disclosure: I am long SSO.

    Mar 14 3:24 PM | Link | 20 Comments

    My primary income strategy is a contrarian strategy. Buy individual bonds and dividend growth stocks after they have gone through serious decline and hold until fundamentals change. I buy individual muni bonds, preferred stock, corporate bonds and dividend growth stock for this strategy. Ms. Whitney created buying opportunities when she made her proclamations about the muni bond market. 2008 was a good time to acquire dividend growth stock. The taper event last fall created opportunity to purchase preferred stock at 300 basis points over the 30 yr treasury. However, there are many times when one must sit and wait. Once a purchase is made, price increases may make this position a hold rather than a candidate for additional purchase. Therefore, I have adopted a second income strategy to be used when it is more difficult to find value.

    I track ten funds which include two closed end funds and eight exchange traded funds. They are npi,min,vclt,vcit,vglt,vgit,bwx,pcy,jnk and shy. The top 3 are chosen monthly based on 6 month relative strength. If no funds perform better than SHY then the position goes to cash.

    This is another momentum strategy which I have used. No funds performed better than SHY in January so the position was in cash. The review on January 31st showed three funds that qualified for inclusion. They were NPI,VCLT and JNK. These positions will be equally split and each position will be held until it's ranking drops below fifth position. This is to reduce trading. So we start this portfolio as of February 1st, 2014 with three equal weight positions in NPI,VCLT and JNK.

    Disclosure: I am long NPI, VCLT, JNK.

    Mar 13 11:29 AM | Link | 13 Comments
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