ITA Wealth Management

For many years, Grace and I included book and film recommendations with our annual Christmas greeting.  Below are a few suggestions for 2008 that we think are special. This year we are directing friends to this blog site to see what is on the list and by doing so, we are opening up these suggestions to the thousands of readers who stop by for investment information.  We hope you enjoy a few book and film ideas from our 2008 list.

A special feature this year includes photos of the family and a few more pictures from our travels.  Just click on the word, pictures, for the link to the photographs.  Then step through them one at a time.

Books

• (For young adults) “Lock and Key”
• “Twilight” (and New Moon, Eclipse, and Breaking Dawn)
• “The Book Thief”
• “Animal Vegetable Miracle”
• “Alexander, Who Used to Be Rich Last Sunday”
• “If I Had $1,000,000″

For more “adulty” adults - but notice there are some cross-over titles.

• “What is the What” by Dave Eggers
• “A Voyage for Madmen” by Peter Nichols
• “The Book Thief”
• “3 Cups of Tea”
• “Eat Pray Love”
• “The Bogleheads’ Guide to Investing” by Taylor Larimore, Mel Lindaur, and Michael LeBoeuf
• “1,000 Recordings to Hear Before You Die” by Tom Moon
• “The Zookeeper’s Wife” by Diane Ackerman
• “The People of The Book”
• “The Adventures of Kavalier and Clay”
• “Animal Vegetable Miracle”
• “Finding Beauty in a Broken World”
• “Kiss My Math” by Danica McKellar
• “Math Doesn’t Suck” by Danica McKellar

Films

• Believe in Me
• Nowhere in Africa
• Joyeux Noel
• The Man Without a Past
• Monsieur Ibrihim
• The Visitor

Lowell Herr

Photograph:  Grace with Woofie

Readers interested in an analysis of a portfolio are welcome to send me up to twenty tickers and the percentage allocated to each ticker.  I will then run an analysis on such a sample portfolio, providing projected annual return, risk percentage, and portfolio diversification.

Send data to itawealth@comcast.net

Normally, I begin portfolio design around eight to twelve index vehicles, mainly ETFs as I prefer them to straight index funds.  Then I will sometimes add a few individual stocks until I have accumulated 20 different tickers.  This morning I took a different approach to portfolio development.  Instead of the ETF approach, I selected the top 15 stocks from the nearly 150 I track.  This sample portfolio was built on the base of those 15 stocks and I then added five ETFs giving exposure to international, REITs and a few other specialized classes.

What is surprising is that the projected annual return is competitive with portfolios built around ETFs.  Further, the standard deviation or risk factor is a little lower than I generally see when using a total ETF portfolio.  And for good measure, the diversification metric turned out to be above 40%, a very acceptable value.

The point of this exercise was to show one can construct a well diversified portfolio, with relatively low risk, and acceptable projected annual return by using stocks instead of index ETFs.  Do note that risk protection was added by inserting 25% in broadly diversified ETFs.

Selecting entry points for the tickers that make up this sample portfolio is another problem that faces any investor.  Once the portfolio is beyond the design mode, how does one go about implementing or populating the portfolio.

There are several approaches to solving the problem.  One is to buy at the market price.  In this volatile market, that is not my recommendation.  A second option is to set different limit orders where the percentages are positioned at different levels below the current price.  This approach assumes the broad market is moving lower and the investor will pick up different equities or bonds at different levels.  A third approach is to use the StockCharts graph I’ve mentioned on several occasions and select entry points depending on market behavior.  As I write this post, many of the ETFs show positive RSI, MACD, and CMF graphs.  What is still missing is the 26-Day EMA moving from below to above the 52-Day EMA.  A fourth suggestion is to wait until (and if) the DJI breaks below 800 or we see a retesting of the November 20-21 levels. If this were to occur, then a prudent investor will begin to dollar-cost-average back into the market.

The details of this Mosaic Portfolio are available to interested investors.

Photograph: Rothenberg, Germany

In the process of reading a forum message this morning, I ran across this recommended portfolio.  For several reasons, it is not one I would recommend completely to users, but it is a portfolio one could use as a sample or springboard portfolio.  Here is a short “movie” illustrating the ingredients that make up this sample portfolio.

This portfolio includes a retail holder, and I am not a fan of HOLDRs.  Stick with ETFs or in some cases, ETNs rather than use HOLDRs.  I also would not hold a treasury fund.

Lowell Herr

Photograph:  Easy

This morning’s classical music recommendations are the five piano concerto’s by Saint-Saens.  This specific recording was the Gramophone Record of the Year 2002. Yes, it is a little spendy, but it is a two CD purchase.  Stephen Hough is the pianist and Sakart Oramo conducts the City of Birmingham Symphony Orchestra.  The interplay between Hough and the Birmingham Orchestra is wonderful.

Lowell Herr

Photograph: Flowers in Westlake Village, CA

Check this one out.  It is amazing.

What Engineers Do When They Retire…..
Click Here

Are there any readers who recall “The Golden Rule of Investing?”  Simply stated, it is the following - “Save as much as you can as early as you can.”  This simple rule, and the first rule of investing, came to mind once more as I was reading the book, “The Bogleheads Guide to Investing.” The authors begin chapter one with the following information I’ve seen in many investment books or magazines.

“It’s an old statistic that has held very consistent over time.  Take 100 young Americans starting out at age 25.  By age 65, one will be rich and four will be financially independent.  The remaining 95 will reach the traditional retirement age unable to self-sustain the lifestyle to which they have become accustomed.“

Stated another way, I’ve read that the 95% who have not prepared for old age have only saved $50,000 or less, thinking that was sufficient to carry them through their retirement years.

There are a few other words of advice to the very young readers, if there are any taking the time to read this blog.

1) Graduate from high school.

2) Graduate from college or university if at all possible.

3) Never borrow except for an education, house, and first car.

In a later post we will show some examples of what it takes to save for retirement.  In this season of spending, think carefully how you are using your money.  Know that a person preparing for retirement is living a lifestyle that is well below their means.

Photograph: A street bazaar.  Wertheim, Germany

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Happy Thanksgiving to the 15,000 unique readers who visited this blog over the last nine months.  May the market behave differently over the next year.

When can we expect to see the broad market stabilize?  I expect that is a question on the minds of countless investors and most hope the answer is sooner rather than later.  I’m not sure how educated my guess is, but I think it should happen between now and the new year.  I look for better market days to begin before the end of the second quarter of 2009.  That seems a long way off after a week such as this one.  What to do at this point?

• Complete tax selling
• Examine allocation percentages
• Check the portfolio to see if any rebalancing is required
• Prepare to put cash to use
• Line up stocks or ETFs you want to include in the portfolio
• Check the StockChart for each investment
• Prepare entry points for equities you want to add to the portfolio
• Be patient and do not panic

Lowell Herr