When the market opened this morning, two ETFs in the AA-Mosaic Portfolio hit the limit order I set weeks ago thinking the price was so low they would never be struck.  This morning they were hit and I picked up blocks in emerging markets and large-cap growth.  The details will be available on Premium Content along with the spreadsheet later today.

We must be getting close to a market bottom as there will be lots of tax selling over the next few weeks.  Once this selling wanes, it is my hope the market will stabilize and begin an upward climb. We will need to see some positive earnings reports and that many be several months away.

Lowell Herr

Photograph: Clock on Central Station - Amsterdam, Holland

Premium subscription available for $6.99 per month.

The link in this blog entry contains some of the most informative reading you will find in the investment world.  Read a few articles and then see if you do not agree with me that this is a launching point for many hours of reading.

Geoff Considine provides a tremendous service to “do-it-yourself” investors.

Photograph:  Central Station in Amsterdam, Holland

By the end of the week all the tax selling will take place in the taxable accounts and the restructuring of these portfolios will begin.  The asset allocation plan will require looking for assets that have low correlation, better than average projected return, and low historical R^2 values as measured against the S&P 500.  The combination of asset will provide for a well diversified portfolio as measured by the Diversification Metric.

Premium Content readers will be able to follow the restructuring of the GLW Portfolio in particular as this is one of the several portfolios that will require reworking.

Lowell Herr

Photograph: Canal travel, Amsterdam, Holland

Most investors are holding bond or equity investments that are well below the purchase price.  Now is the time to look over those losses and sell to take advantage of tax losses.  If one is holding an ETF such as Vanguard’s Large-Cap Value VTV, one could wait 31 days to repurchase the same ETF or substitute the IVE iShare that covers the same asset class.

Examine all tax portfolios and see if there are investments that can be sold for a loss.  Sell either at market, place a limit order, or put in a trailing stop-loss order (TSLO).

Photograph:  Great Blue Heron

Premium Content readers will find new information on the Value vs. Growth debate in an entry posted this morning.  The evidence to tilt a portfolio toward value is anything but clear cut and I needed to change my prior position where I favored value ETFs over growth ETFs.

New evidence, at least for me, is that the value/growth debate is not where we should be moving to construct higher return and lower risk portfolios.  Instead, one should concentrate in selecting ETFs that have low correlation, low P/E ratios, low Price/Book ratios, and generate high yield.  Look for these developments in the construction and management of the portfolios tracked over on the Premium side of this blog.

Photograph: Mykonos

Premium subscription available for $6.99 per month.

This week I am recommending a Philips recording of Mozart’s Great Piano Concertos.  These include Nos. 19, 20, 21, 23, 24 and 2 Concert Rondos.  Alfred Brendel is the pianist and Sir Nevelle Marriner conducts the Academy of St Martin in the Fields.  This is a 2 CD package.

Photograph: Mozart sign in Vienna, Austria.

In the November issue of the American Association of Individual Investors Journal (AAII) James B. Cloonan provides an interesting portfolio built around the follow ETFs.  They are: FDM (16%), PRF (16%), RFV (16%), RZV (16%), ICF (16%), GWX (5%), RWX (5%), VEU (5%), and VWO (5%). I’m very familiar with ICF, RWX, VEU, and VWO, but the rest are ETFs I have not used or checked their expense ratios.

What I did was run a QPP on this portfolio and here are the results.

• The projected annual return is 11.8%.  I assume this to be only for the next year.  I want this to be at least 10% and preferably 12% or higher.  Eleven percent is acceptable.
• The Standard Deviation is 15.5%.  I prefer this to be lower than 15%, so it is close.
• The Diversification Metric is 49% or an acceptable figure.
• The Portfolio Autocorrelation is 47.2% or a tad on the high side.  I find it difficult to pull this number into the lower figures so this number is acceptable.

A number of these ETFs have a low correlation with the S&P 500, a desirable feature.

Before purchasing any ETFs, be sure to check on the expenses and compare them with what Vanguard charges as Vanguard has the lowest fees.

Lowell Herr

Photograph: Elan Gallery - West Linn, Oregon

Similar QPP analysis is provided for several portfolios on Premium Content.  Subscription is $6.99 per month.

November 13th may be the date the bear market ended.  Let’s hope so as the last year has been a painful period.  The S&P hit a 52-week low so we need to see if this level will be retested over the next few weeks.  The NASDAQ is approximately 150 points off its 52-week low and the DJI nearly tested its 52-week low yesterday.

Photograph:  Government building in Budapest, Hungary

Michael Lewis, author of Liar’s Poker, has written a most interesting article on the sub-prime mess and and some of the reasons for the current market decline.  The End is a must read.

Lowell Herr

Photograph: Temporary location for statue.

Yesterday’s 411.3 point decline was further evidence investors are coming to the conclusion - nobody is in charge.  This president has showered, zipped up his gym bag and is about to board the bus.  Unfortunately, it is still 68 days before the bus heads for Crawford, Texas.  What remains is a legacy of cavalier spending, budget busting policies, and a shredded Constitution.  This economic and moral morass leaves the rest of us to figure out how to manage our investments and keep our lives together.

After listening to Henry Paulson yesterday, and several times over the past weeks, I’ve come to the conclusion he too has no clue what to do.  To think that he is in charge of dispersing 700 billion dollars is frightening.  Confidence in this kind of “leadership” is zip - zero, and the daily market decline is a record of how investors are voting.

I join the vast majority of Americans who feel we will be better off in four years.  Actually, we will be better off in 68 days, but no pollster is asking that question.

Since we cannot “check out” as the president has done, what is the plan going forward.

Suggestions for moving forward

• Slowly add to investments on market declines.  Pay attention to the moving averages on StockCharts. If you are not comfortable investing in a falling market, wait for the 26-Day EMA to move from below to above the 52-Day EMA.  You may even want to increase the number of days for these EMAs.
• Check on your asset classes to see if they are in balance. Rebalance if necessary.
• This is gut check time to see if you have the proper asset allocation plan.  Review the allocation percentages if there is discomfort with the current plan.
• Great patience is required in these difficult times. Remember 1929-1945 and 1969-1982?  We may well be in for another market drought.
• Consider dividend generating investments.
• Discipline yourself to save regularly, even though it seems like the end of the world is close at hand.  It isn’t.
• I expect purchases over the next year will pay off handsomely in ten years.

Photograph: Sculpture in Budapest, Hungary.  The photograph reflects how U.S. investors are feeling in this bear market.