myfinancialmarket.com

First some numbers for the day: As of February 19th, 2009, the DOW is down -14.47 % for the year (having Bank of America, General Motors, and Citigroup, along with General Electric sure hasn’t helped the DOW this year and last).

When talking about an Allocation plan, this is achieved in at least two ways. The first method relates to the percentage of your investment dollars that you choose to have in the overall Market, with the remainder being in a money market of CD account. The second method assumes you are always invested in the Market 100% and with diversification of Investments in Stocks, Mutual Funds, Exchange Traded Funds (ETF’s), Bonds, Options etc., you allocate a certain percentage of your investment dollars to each.

This note will talk about an Allocation approach along the lines of the second method (except allowing some fixed income investments), in particular for this note the investment is done for you by what are called Target Funds. These are Mutual Funds in which the fund company has establish a group of Target Funds identified to a specific year, say Target 2050 for example. If 2050 is your target date for retirement, the fund company will initially be aggressive in their investments and as you approach your retirement age, the fund company will change the mix of investments, adding more fixed income to the mix in order to be more conservative. These type of funds are being offered now in 401K type programs for investors who wish to have their investment exposure amount automatically selected for them without getting involved in trying to decide which mutual fund to buy on their own. Usually these Target Funds are a group of funds already offered by the underlying fund company and the Target manager just picks from these funds. The big Target Fund companies are Fidelity Investments, Vanguard, and T. Rowe Price. There are other Target funds, but these are considered the biggest.

Using Fidelity as an example, they have Target Freedom 20xx where xx can be from 00 to 50, thus the most agressive would be Freedom 2050 and the least aggressive would be 2000. The earliest dated funds become even more conservative as time goes on and eventually merge into an Income Fund which still maintains about 20% in stocks. As expected the Fidelity Freedom’s 11 Target funds had performances in 2008 that matched their Target dates with early Target Funds, which are conservative, showing less loss than the later, more aggressive, Target years. Freedom 2050, the highest risk fund, lost -40.61% in 2008, whereas the Freedom Income Fund lost -12.37% last year. The other 9 funds varied inbetween these values.

An investor can do a secondary allocation here as well in addition to the allocations by the mutual fund company. For example even though a future retirement may be out there at 2050, an investor may opt for a Target fund that is 2030. Again this decision would be along the lines of investing in something you can sleep comfortable with and not anguish over potential losses of your investment. Again using Fidelity as an example, the Freedom 2030 fund lost less in 2008 than the Freedom 2050, although still a large amount at -36.93%.

Selecting a Target Fund family is somewhat a personal choice as to who you do the most business with. However when I look at performances I see that in both 2007 and 2008 the T. Rowe Price group had several funds near the bottom, although so far this year, they have many near the top with Vanguard holding the current bottom spot.

These Target Funds have some downside and that there may be hidden fees as Target Funds hold other funds so there would be a management fee (hidden in the performance results) on top of management fee. Also an astute investor or financial advisor can likely do much better than these funds.

You also may want to check a neat Asset Allocation calculator at T. Rowe Prices’s web site:

http://individual.troweprice.com/public/Retail/Mutual-Funds/Retirement-Funds

You slide a bar to your age and up comes your asset allocation. For example at the ripe old age of 35, this is 90% stocks, 10% Fixed Income and they suggest investing in their Retirement 2040 fund. (Just a side note here as it has been shown by some studies that holding 10% in Bonds or Bond Funds results in a better long term performance than simply 100% stocks or equity mutual funds, which is why I suspect they came up with this ratio. )

Now at the youthful age of 65, the bar suggests 55% in stocks or mutual funds, 35% in bonds or bond funds, and 10% in money markets or CD’s. The suggest their Retirement 2010 fund in this case. (my side note here is that this kind of market exposure seems to go against an old rule of having your investments in stocks being 100-your age, so this one seems a little high by that rule.)

Okay seems like enough for now on Allocation — Part III coming next.

Don

To Start, here are the Numbers for Feb 17, 2009:

Dow is down -3.79% for the day, -13.97% year-to-date, and this is on top of the -33.8% loss in 2008. It’s been plain Ugly!!

When I started writing this Financial Blog, my thought was one of education into the stock and mutual fund investments for those reading the various postings. Perhaps a few suggestions on Portfolio Diversification, along with some fund suggestions would come forward, that was the original plan — how times have changed! Most everyone has either an IRA, 401K, or 403B type investment - perhaps in addition to a basic brokerage account, thus the desire to know how to make these investments work best for themselves. I think this Blog is still a work in progress, hopefully to continue to help many of you with your own investment decisions.

Here is a little background on the investment philosophy I have been mostly approaching for the stock market. Having studied very long term overall stock and mutual fund performances going back to the 1970’s (not far enough it seems in today’s environment) I decided to become what is called a “Swing Trader” an investor who buys for short term trades (but not day trading). Later I decided to hold a group of funds for at least one year, sort of a “Buy and Hold” process, yet not a a major part of my portfolio. This was sort of hedging your bets as timing the markets can be good, yet there are times when this approach under performs. However with the direction of the markets over the last year being definitely down, I believe Market Timing has finally proven itself to be viable in spite of all the academic studies of the past that suggest otherwise. I think you will see my thread here as I am encouraging you (or your favorite financial advisor) to look at Allocations plan for your portfolio (in or out of the Market, or somewhere in between) as a minimum. If you are lucky, you have a sixth sense for this, if not, then finding a good advisor or developing the needed fundamental and technical kills will surely make a difference in the long run for your nest egg.

I want to eventually get into an Allocation approach that I like for investing, but first I’ll bring up a couple of daily comments I have received from the stock downloading service I receive from Telechart 2000, or TC2000 (http://www.tc2000.com/). They are an online service that provides a data base of stock and/or mutual fund pricing history plus tools for users to come up with their own, or else suggested inputs from subscribers including various trading algorithms.

The first TC2000 comment I will make was in The Worden Report (Wednesday, November 21,2007)

“The Primary Bear Is Here!

Who would have thought the Dow would plunge into a Primary Bear on the day before Thanksgiving (2007) (or any holiday for that matter). The Dow sliced through the level of its own closing low of August, coming to a halt in the mud-puddle about 62 points below the last support level. The SP-500, however, closed about ten points above the abyss, the traditional abode of evil spirits, and in so doing staved off the nebulous moniker, “bear market.” (The Nasdaq Brothers aren’t quite ready for such a big step.)”

Then, more recently, The Worden Report (Wednesday, February 4, 2009)

I , (the author, who is Don Worden) feel I should point out for the lazy guys out there, that if you had merely followed the Primary Trend on the Trend Table below (not displayed here), you would have turned bearish in October 2007 (note: he meant November), by continually following the Primary Trend Designations. You would still be out of the market with no diversions along the way. You could have gone fishing, if that is what you like to do. And you would still be out there–providing a shark didn’t get you.

Well, I suspect few investors (including myself) followed the Don Worden comment above (based on Dow Theory), thus we continue to hold various equity positions along with bonds and cash. The point here is this simple Allocation approach would, if followed, have saved most of us a lot of lost dollars along the investment trails.

I am not quite a fan of an all or nothing approach when it comes to long term investments (and for many investors there are tax issues that are of concern as well). One allocation approach to the TC2000 observation is to start removing yourself from the Market on a timely basis when long term indicators suggest so. This is because indicators tend to whipsaw or turn around just after you made a position adjustment. Thus perhaps selling 10% of your holdings each week or month while the primary trend is down would have been an appropriate approach here, with the intent to follow the long term signal, yet still having enough positions in the market to recover in case the sell signal was false. The converse is true too, that is to move back into equities when conditions of the market are more bullish. Quite often this approach is referred to as “Dollar Cost Averaging.” We cannot predict with a lot of accuracy just where the market is headed today, or any day. This is where dollar cost averaging comes in, that is to make small timely adjustments in case your assumption or estimate was wrong.

In the next posting I’ll begin to introduce a weekly or monthly allocation approach using 4 Market Indicators. To skip ahead a bit, this allocation approach has been out of the market since Sept16th of 2008. I am now mostly following this approach for trading Fidelity Mutual Funds and will begin to purchase new funds when this indicator begins to show positive.

Don

First things first:

The overall stock market, as defined by Vanguard’s S&P 500 index fund has lost -8.14% through the beginning of Valentine’s weekend. Definitely the Second Mouse is still waiting for fresh cheese, while the Early Bird investor is sporting a sling on it’s wing. It is simply hard to say if now is a great time to buy, or to continue waiting in time.

I can only say what I have done since the beginning of the year so as not to suggest I’m offering any advice, but just to describe what I am doing investment wise. As I mentioned in previous Blogs, I ended up the year with a sizable cash position. At the very last day of trading in 2008 I purchased equal amounts of 6 Mutual Funds (see previous Blog) , something I do every year, and hold these funds to the end of the year. I started the year with just a few ETF’s in a trading portfolio, not a hold to the end of year group, mostly bond ETF’s. I now own AGG, LQD, GLD, FXF and CIU ETF’s for my ETF portfolio. Tuesday I will be adding TIP to the ETF portfolio group. This group can expand to 10 ETF’s, so I could and will add more as buy signals appear. The YTD performance is - 0.83% for the ETF model. The 6 Mutual Fund holds on the other hand have lost -6.20% again (yet beating the overall Market) showing the ETF trading group doing better than just holding Mutual Funds.

I also have a stock trading portfolio based on earnings surprises which started the year with 100% cash and had been that way for several months before that. Just two weeks ago, stock TSYS was purchased and on this next Tues., at the market open I’ll be buying CKSW. Keep in mind that these are short term trades, not day trades, and I may sell them after any adverse market action. The performance to date is a postive + 0.7%, which if this portfolio continues this way will beat out the market again.

Bottom line is I’m cautious, yet adding a few positions as I write this.

Don

When starting today’s Blog, I thought of a song from the 1950’s song by a popular group of the time, the Kingston Trio who were well known then, especially in the San Francisco area. The song tells of a man named Charlie who was trapped on Boston’s (what was then known as the) M.T.A. as he didn’t have sufficient change to exit the train. I have taken a lot of liberty in altering the words quite a bit… listen in as they say.

Spoken Words:

…These are the times that try men’s souls. In the course of our nation’s history, the people of this country have invested hard earned money for their future. Today, a new crisis has arisen. The Stock Market has taken away so much of these investments…

(Eight bar guitar, banjo introduction) — now starts the singing.

…Well, let me tell you of the story of a man named Charley on a tragic and fateful day.
He put 10% into his IRA, another amount into his 401K and kissed his wife and family, and went to work for more pay…
Chorus:
Well, did his IRA or 401K ever grow? No, it never returned and its fate is still unknown.

…The definitely modified song is now finished.

It’s that last part of the verse however, “its fate is still unknown.” that faces us all now when trying to figure out just where our economy will go and specificially where our investments are going.

you can find the correct lyrics to M.T.A at http://www.musicsonglyrics.com/K/kingstontriolyrics/kingstontriomtalyrics.htm

Then if you are really curious, here is a uTube video:

http://www.youtube.com/watch?v=3VMSGrY-IlU

When I started writing this blog, the thought was to periodically write about various equity investments - stocks and funds of stocks, describing the various types of investments and which ones are doing well. For many years of investing, there was always a sector to find doing well, whether it be technology, medical, energy, real estate, international, or even gold. Then along came 2008 (and now so far 2009) in which we had a “Perfect Storm” condition — that is to say there were really few harbors to find safety from the economic storm, keeping in mind that even in stormy seas, a submarine is a okay place to be. So it is with the equity markets, everything was sinking — yet there was safety in shorting the markets, either via stocks or ETF’s that did this for you.

Now onto my personal investment style going into 2009. First of all throughout the fall of 2008 as the Market dropped I unloaded many mutual funds which I previously had considered long term holds and decided to go back to my roots as being more of a what is called a “swing” trader - that is to hold stocks or funds for perhaps on the average of slightly less than a month. I would still hold some long term funds, but these would be on the Conservative side, such as Permanent Portfolio (PRPFX) which lost in 2008, yet only about 8%. I’m also holding James Balanced Golden Rainbow (GLRBX) which dropped just over 5% in 2008. On the Moderate side, Oakmark Equity & Income (OAKBX) has been a long term favorite which lost just over 16% last year. Another Moderate Fund hold is FPA Crescent (FPACX), which although considered Moderate did lose about 20% last year. Finally a last Moderate Fund, which had a disappointing loss of over 27% last year is Leuthold Core Investment (LCORX). These combined 5 funds had an average loss of 14.5% last year, not to bad considering the average fund (as defined by the SP500 fund, VFINX) lost over 37% last year.

At the beginning of each year I also buy a group of 6 mutual funds to hold for one year. The screening process starts with mutual funds that are open to new investors and have no load or transaction fee charges. Then the funds have to be rated 4-star or 5-star funds by Morningstar. Then I add a screen which makes a final selection based on a 2-yr performance basis coupled with relative strength compared to other funds in each of the 6 categories. To start 2009 I selected the below 6 mutual funds, keeping in mind that my investment is relative small here and my main reason for this is to educate myself on the overall mutual fund market. Each fund is different in category (Large Cap, Small Cap, etc) plus style (Growth, Value, Blend) from each other. Here they are:

1. Large Cap Value - Amana Income (AMANX)

2. Large Cap Blend - ICON Income Opportunity I (IOCIX)

3. Mid Cap Growth - Needham Aggressive Growth (NEAGX)

4. Mid Cap Value - Ave Maria Rising Dividend (AVEDX) - interesting name

5. Small Cap Value - Intrepid Small Cap (ICMAX)

6. Artisan International Value (ARTKX)

These are not my total investment vehicles, as diversity in investment methods is just as important as diversity in fund categories, such as shown above. I’ll write about Mutual Fund, ETF and stock trading in future blogs.

Don