Twitter users will find TweetDeck a useful application as it will help to organize your Twitter activities. As you will see when you download and install TweetDeck, you will need to also install an Adobe Air file. At least this was required on my Mac.
Announcement: Coming next Saturday is a Power of Ten problem. If any of my former physics students are reading this, dial in next week for the problem.
Lowell Herr
Photograph: Typical store front on Mykonos Island, Greece.
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Below is a semi-conservative portfolio where the building blocks are a wide variety of index funds from Dimensional Fund Advisors. These are known as DFA funds and they are only available through approved financial advisors. One such firm is Index Funds Advisors (IFA) and if you have never been to their site, you are in for an investing treat as it is the best investment site I have ever seen on the Internet.
The analysis you are looking at to the left is portfolio #65 from IFA. Looking at Portfolio Stats or the data with the blue background, you will see the projected return is 8.14% while the annualized Standard Deviation or risk factor is 14.36%. This gives us a Return/Risk ratio of 0.57. We strive to come up with a Return/Risk ratio of 0.80 or higher. This is extremely difficult to do in this market as it is so volatile.
The last four funds in the list are bond funds. The four bond funds make up 25% of the total portfolio. Note that the 6.3% is really rounded up from 6.25%.
Under Historical Data, or the information with the yellow background, we see this portfolio lost only 11.9% (annually) of its value . Most of us would be quite pleased with a portfolio that reduced losses to this level while the S&P 500 was down 15.7% (annually) over the same period. The Passive Portfolio, monitored over on Premium, performed about as well as this semi-conservative portfolio, and did it with no bond funds.
Another important piece of the portfolio puzzle is something called Diversification Metric (DM). In this portfolio, the value is 46% or a very acceptable diversification percentage. I prefer to see that number over 40% and over on Premium Content we have portfolios that do a little better and some that are not as high as this sample presented this morning.
The software used to analyze this portfolio is known as Quantext Portfolio Planner (QPP) and it is available to interested investors. Examine the projected return for each of the index funds. If one wishes to take on a bit more risk, altering the percentages or applying some Tactical Asset Allocation to the portfolio is a way to increase the probability of obtaining a higher return. Our spreadsheet program available on Premium is set up to aid the investor in making these decisions.
Lowell Herr
Photograph: Santorini Island, Greece
Premium subscription available for $6.99. Submit tickers and percentages for individual portfolio analysis. Portfolio construction and management available on the Premium Content side of this blog.
When will this market turn around? With approximately 7 trillion sitting in cash waiting for some good news, it is only a matter of time and confidence before the stock market begins to rise from the ashes. While we don’t know when this might happen, we do have graphs that provide some clues when the move begins. Now is not the time to be selling equities as the probability for a higher market is greater than it is for a lower market. This is not to say we will not break below 7000 on the Dow or even test 6000 or 5000. Those numbers would be most painful.
Patience is still the order of the day. When you fire up your computer in the morning, take a few minutes to lite up two graphs on StockCharts. The first graph is the combination of the 26-Day EMA as compared to the slower moving average, the 52-Day EMA. We are looking for the day when the blue line crosses from below to above the red line.
The green line is the 190-Day EMA. Since the 200-Day EMA is such a popular Exponential Moving Average (EMA), I use the 190-Day EMA as it is a little faster moving and price movements above that line will signal in advance what many other investors are about to do. The 190-Day EMA moving average is so far out of the picture at this time we can forget about it for now.
The second graph to activate each time you reboot or wake up your computer is the 13-week/34-week combination. I convert them to business days so it becomes the 65-Day EMA and the 170-Day EMA. Since these are slower EMAs it will be some time before we see the 65-Day EMA move from below to above the 170-Day EMA. When that occurs, we plan to be fully invested in the market.
Now is a good time to check the asset allocation plan you established for your portfolio. Remember the Ibbotson study? If you don’t remember, the Ibbotson study concluded that on average asset allocation is 100% responsible for the portfolio return. Active management, on average, adds nothing to the performance of the portfolio. I have quite a few references to Ibbotson on this blog so you may want to search them and read those posts. If you do not have an asset allocation plan for your portfolio, now is the time to get moving and develop one. Numerous examples are available over on the Premium Content side of this blog.
Lowell Herr
Photograph: In memory of Harley
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