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jmrathbun
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I've been investing for my retirement since the late 70s. I mainly use mutual funds and follow major trends. I doubled my money in the past decade. In the 80s and 90s I tripled in each decade.
  • Flashing Yellow

    I'm not as optimistic about this bull as I was a month ago. In fact, I'm about 28% in cash at present. Several of my favorite technical indicators are flashing caution.

    My two small stocks continue mixed. Despite the 9.4% drop in the price of gold, AABVF is up 7.7% for the quarter (all numbers include dividends) but AXPW has dropped 51% as it gets ready for a public offering and NASDAQ listing. Fortunately, AXPW is my smallest holding.

    Current fund/ETF holdings include:

    DSEFX purchased 8/5/14 up 2.4%

    HDPMX purchased 1/7/14 up 13%

    PRHSX purchased 2/6/12 up 109%

    RPG purchased 3/5/14 up 2.1%

    XLP purchased 3/5/14 up 8%

    XLU purchased 2/5/14 up 12.5%

    DODGX purchased 1/7/14 up 8.6%

    MGK purchased 8/4/14 up 2.5%

    PRWCX purchased 1/7/13 up 40.3%

    SSHFX purchased 6/4/13 up 27.8%

    The following positions were sold since 6/30/14:

    PKW bought 1/7 sold 7/3 up 6.9%

    VCVLX bought 5/5 sold 8/4 up 1.9%

    IWS bought 7/3 sold 8/4 down 5%

    JSVAX bought 2/5 sold 9/3 up 12.5%

    XLE bought 3/5 sold 9/29 up 6.8%

    XLB bought 1/7 sold 10/3 up 8.1%

    RPV bought 9/4 sold 10/3 down 3.2%

    DODWX bought 4/4 sold 10/3 up 2.9%

    Note the churning compared to only one sale in the previous quarter. This is an indicator of changing leadership in the market. New leadership has not clearly manifested as of this writing. This is not a good sign!

    What's going on? Weakness in Europe, renewed war in the Middle East, the Arab bomb, China and Russia flexing their muscles, weakness in new home sales here, Ebola, and a general feeling that the market may have gotten ahead of its fundamentals. The FRED portfolio equity percent reading suggests a high probability of an average 5% annual return for US equities over the next decade, which is subpar. A lot of Boomers will be retiring shortly, drawing down their savings. The month of October has bad associations for anybody who was a player in 1987.

    This much seems clear: the big boys are keeping some powder dry at the moment. I'll do the same. But I won't repeat the mistake of diving into fixed income just now. Current returns on short-term debt aren't worth the trouble it takes to trade, and with such low rates on the long end we remain exquisitely vulnerable to a bond market crash when long rates go up.

    People may feel better after the election.

    Tags: stocks, funds, outlook
    Oct 04 11:45 AM | Link | Comment!
  • Boring Boring Boring

    And sometimes that's good news!

    The S&P500 with dividends reinvested is up 4.7% this past quarter. Annualized, that's a 20% yield. Do that every year for a decade and you've gained a SIX-FOLD return! I'll settle for that.

    So when is the big correction coming? I can't predict the next few months but I still don't see any sign of trouble on the horizon. All the indicators I follow are encouraging except the one mentioned in my previous article: the FRED equity percent is at 40 which suggests only 5% average annual returns for the next decade. That's below par, but a canny investor hopes to ride the bull while he runs and then jump when he stumbles, passing a chance to furnish lunch for the bear.

    (All percentages include distributions.)

    I only sold one position this quarter, and it was a stinker: FOCPX lost 9.9% over two months. Ugh!

    I added one position to my sector rotation portfolio: XLP, up about 4.6% over the past two months. The other three were held for the quarter and yielded as follows:

    • XLB up 4.9%
    • XLE up 12.9% (thank you, Middle-East Radicals!)
    • XLU up 7.7% (thank you, perma-bears!)

    Overall I can't complain about this method!

    One of my two small stocks, in which I have appropriately small positions, did not shine:

    • AABVF +5.6% (Mid-East moved gold a bit)
    • AXPW -17.4% (They announced a major sale in the renewable energy market but skeptics abound)

    Other funds held for the quarter did as follows:

    • HDPMX +5.8%
    • JSVAX +4.5%
    • PRHSX + 4.4%
    • RPG +5.9%
    • DODGX +4.5%
    • PRWCX + 4.0%
    • SSHFX +5.0%

    Two funds were purchased besides XLP:

    • DODWX up 4.7% in three months
    • VCVLX up 6.0% in two months

    Finally, I bought IWS in early July.

    Now is the time for me to say something profound about the market... what worries me or fills me with hope. What worries me most right now is the Ebola outbreak in West Africa. I sure hope our CDC is on top of this to prevent a spread of contagion to our shores. Stay tuned!

    What fills me with hope is that the US electorate seems progressively dissatisfied with our current economy and will likely respond by returning power in Washington to those whose ideas about taxes and regulation could lead to actual prosperity. That seems to be the way the market is betting, and I don't want to fight the tide with my retirement portfolio.

    Best of luck to you and yours!

    Tags: sector, fund, etf, timing
    Jul 05 4:38 PM | Link | Comment!
  • Using Fred

    A determinedly anonymous blogger at philosophicaleconomics.wordpress.com/201.../ has documented a very tight correlation between the percentage of equities in the average portfolio and stock market returns over the next decade. He adduces a lot of interesting evidence with a high degree of statistical sophistication.

    From a contrarian perspective, his finding makes perfect sense. When stocks are popular, investors bid up their prices, reducing the potential for future gains, and vice versa. What's surprising is how well-correlated portfolio composition is with future returns (R² = 0.91), better than for most popular indicators.

    You might wonder how you can possibly figure out the percentage of equities in the average portfolio. Surprisingly, the St Louis Fed publishes this data on a quarterly basis: research.stlouisfed.org/fred2/graph/?g=qis#. The most recent (2014-01-01) level is 40%.

    A graphical display at the head of the article allows one to translate this number into a high probability prediction of an average 5% annual return for US equities over the next decade. Here's the relevant table:

    % Stocks % Return
    50% -2.0%
    45% 2.0%
    40% 5.0%
    35% 9.5%
    30% 13.0%
    25% 17.0%

    One can say that we should expect above-average returns when the portfolio equity percentage is below 35% and below average returns when it's above 35%. It's certainly reasonable to suggest that PEP above 40% would be a flashing red light while levels below 30% would be steady green. But note that returns can be depressed or elevated for decades, that the data is available only months after the fact, that a lot of volatility can happen over ten years, and that below-average returns may still be better than the next best alternative. Today, for example, a 5% return looks a lot better than a ten-year Treasury return of 2.6%.

    There's still no magic stock market predictor. The correlation described here can add some confidence to a prediction for relatively weak stock market returns over the next decade, which is a reasonable time frame for most investors. One would certainly be more alert to the potential for market selloffs at this level than if the portfolio equity percentage were down around 30%.

    Jun 13 8:49 PM | Link | Comment!
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