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Category: investing

2009 Investing In Review


Monday January 4, 2010

Reading Time: 2 minutes

At the beginning of the year we set up some hypothetical portfolios. Rather than review them in individual detail, lets just look at some performance.

One S and P 500 index fund, symbol spy, was us up 25.48% for 2009.
Fortune Magazine picked 10 stocks for 2009.

Here is how it did:

 

Name Symbol Last price Mkt value Gain
Altria Group, Inc. MO 19.79 1290.476 289.1662
Annaly Capital Management, Inc. NLY 17.41 1082.293 82.293
Dell Inc. DELL 14.54 1388.325 388.3248
Devon Energy Corporation DVN 76.57 1107.645 107.645
Diamond Offshore Drilling, Inc. DO 101.17 1653.456 653.456
Fluor Corporation (NEW) FLR 46.01 993.5824 -6.4176
Johnson & Johnson JNJ 64.68 1065.986 65.9855
Medco Health Solutions Inc. MHS 65.11 1509.554 508.8442
Pfizer Inc. PFE 18.93 1016.821 16.821
Potash Corp./Saskatchewan (USA) POT 112.2 1466.92 466.92
Cash 397.26 12972.32

So we are 29.72 % which beats the S and P Fund by 4.24% which is impressive. Notice that half of the stocks beat the S and P and half did not. So you can see the risk.

This was the best of our portfolios. The bond weighting in the others pulled them down. International exposure was great.
Now we will see what 2010 will bring.
Reading Time: 4 minutes

Well we finally had a month when the major averages moved up. And that is no April Fools joke!

Here is how we did.

Our portfolio of 10 stocks from Fortune Magazine gained $269 and now has a value of $9027.

Name Symbol Last price Change Shares Cost basis Mkt value
Altria Group, Inc. MO 16.02 -0.36 65.74 1001.31 1053.11
Annaly Capital Management, Inc. NLY 13.87 0.41 62.38 1000 865.24
Dell Inc. DELL 9.48 -0.01 96.68 1000 916.52
Devon Energy Corporation DVN 44.69 0.07 15.07 1000 673.31
Diamond Offshore Drilling, Inc. DO 62.86 -2.96 16.8 1000 1055.84
Fluor Corporation (NEW) FLR 34.55 -0.28 22.06 1000 762.3
Johnson & Johnson JNJ 52.6 -0.41 16.55 1000 870.37
Medco Health Solutions Inc. MHS 41.34 1.74 23.62 1000.71 976.54
Pfizer Inc. PFE 13.62 -0.08 55.9 1000 761.37
Potash Corp./Saskatchewan (USA) POT 80.81 -0.98 13.52 1000 1092.62
Cash -2.02 -2.02
Total 9027.22

Our low risk portfolio gained $285 and looks like this:

Name Symbol Last price Change Shares Cost basis Mkt value
Schwab Total Stock Market Index Inv SWTIX 14.02 0.19 181.52 2800 2544.94
Schwab International Index Inv SWINX 11.21 0.27 90.43 1200 1013.67
Schwab Total Bond Market SWLBX 8.75 0.02 670.77 6000 5869.26
Cash 0 0
9427.87

Our medium risk portfolio gained $360. Portfolio looks like this:

Name Symbol Last price Change Shares Cost basis Mkt value
Vanguard Total Bond Market Index VBMFX 10.1 0.01 390.79 4000 3947.01
Vanguard Total Intl Stock Index VGTSX 9.39 0.22 167.6 1800 1573.79
Vanguard Total Stock Mkt Idx VTSMX 19.32 0.25 195.43 4200 3775.69
Cash 0 0
9296.49

Our rebalancing act gained $320 and looks like:

Name Symbol Last price Change Shares Cost basis Mkt value
iShares S&P 500 Index (ETF) IVV 79.62 0.63 61.1 5476.05 4864.74
Cash 4523.94 4523.94
9388.68

We then rebalace by selling some 2.14 etf shares:

Name Symbol Last price Change Shares Cost basis Mkt value
iShares S&P 500 Index (ETF) IVV 79.62 0.63 58.96 5282.4 4694.35
Cash 4684.33 4684.33

Hopefully we have some good months ahead.

Reading Time: 5 minutes

One school of thought is that investors should be well diversified. If one investment goes down, then another may go up and things balance out. One tenet of those that preach diversification is that no one can predict movements in individual stocks or sectors, so diversify and reduce your risk. Those that preach diversification also generally think that the at any one time the market is right and future changes are unpredictable. Another concept, which may be a little tough to grasp, is that throughout history a “valuation” of the world has gone up, except perhaps for the Middle Ages. With technological advances one expects the world to get more valuable.

However most who have made great fortunes did little diversification. Suppose Bill Gates had said to himself, when his Microsoft stock was first worth $100,000 had probably represented a large portion o f his net worth, “Gee its crazy to have so much of my net worth in one company, I should sell 99% of it and put the rest in a mutual fund.” And did that repeatedly. You do not read about investors who made fortunes by diversifying, but rather because they made it “oil” or “real estate” or Microsoft. Even Warren Buffet keeps his holdings rather small.

Investors who do not diversify think that they with their brains and hard work can outperform the market over time. They think that the best you can hope for when you diversify well is to get “average” returns and so if they are smarter than average and work harder than average then they should exceed those returns.

The safety aspect of diversification can not be denied. We rarely read about those that had all of net worth in Enron and saw it vanish, or Lehman Brothers etc. Unfortunately there are people who were in that boat.

Diversification has a cost. You either need to pay someone to diversify for you, ie a mutual fund, or you need to pay the transaction costs of buying multiple assets. It took $100 to buy our Fortune Magazine group of 10 stocks but only $30 to buy 3 mutual funds. If you only had $100 then the commissions would have precluded buying the Fortune Magazine group. If you had $100,000 then the commissions would have been a much lower percentage of your assets.

If you think you are really good, then research the 10 companies on the Fortune list, pick 1 or 2, and see how you do against the portfolios.

Reading Time: 6 minutes

2008 was certainly a bad year for almost all investors. 2009 may be bad also, or not. However, if you sit out then you will miss the recovery, when and if it ever happens.

I thought it would be fun to track some investment ideas in 2009. Tools such as the portfolio at Google finance make this easy to do. For all of our portfolios we will hypothetically invest $10,000 and charge ourselves a discount brokers fee of $10 per transaction. We will also start with the closing prices as of December 31, 2008. Here are the initial set ups:

1. A portfolio of 10 stocks from the December 12 issue of Fortune Magazine. Fortune picked 10 stocks to own in 2009. We will buy $990 worth of each and use up our mythical $10,000 with the brokerage fee. Fortune did make these picks earlier in December and there has been some price movement since then.

Here is our starting value:

Name Symbol Last price Shares Mkt value
Altria Group, Inc. MO 15.06 65.74 990
Annaly Capital Management, Inc. NLY 15.87 62.38 990
Dell Inc. DELL 10.24 96.68 990
Devon Energy Corporation DVN 65.71 15.07 990
Diamond Offshore Drilling, Inc. DO 58.94 16.8 990
Fluor Corporation (NEW) FLR 44.87 22.06 990
Johnson & Johnson JNJ 59.83 16.55 990
Medco Health Solutions Inc. MHS 41.91 23.62 990
Pfizer Inc. PFE 17.71 55.9 990
Potash Corp./Saskatchewan (USA) POT 73.22 13.52 990
Valuation 9900

2. A “low risk” portfolio suggested by Daniel R. Solin in his book The Smartest Investment Book You’ll Ever Read. The portfolio consists of a total stock market index fund, a total international index fund, and an bond index fund, weighted 28%, 12% and 60%. We will use index funds from Charles Schwab.

Name Symbol Last price Shares Mkt value
Schwab Total Stock Market Index In SWTIX 15.37 181.52 2790
Schwab International Index SWINX 13.16 90.43 1190
Schwab Total Bond Market SWLBX 8.93 670.77 5990
Valuation 9970

3. A “medium risk” porfolio also suggested by Daniel R. Solin in his book The Smartest Investment Book You’ll Ever Read. This is similar to the low risk portfolio except it is weighted 42%, 18% and 40%. For fun, we will use Vanguard Funds rather than Schwab.

Name Symbol Last price Shares Mkt value
Vanguard Total Bond Market Index VBMFX 10.21 390.79 3990
Vanguard Total Intl Stock Index VGTSX 10.68 167.6 1790
Vanguard Total Stock Mkt Idx VTSMX 21.44 195.43 4190
Valuation 9970

4. Rebalance. We will start with 50% cash and 50% an S and P 500 exchange traded fund. Each month we will rebalance to the 50-50 allocation, spending $10 to make the trade.

Name Symbol Last price Shares Mkt value
iShares S&P 500 Index (ETF) IVV 90.31 55.31 4995
Cash 4995 4995
Portfolio 9990

I plan to post on the first Wednesday of each month the standings of each portfolio. I may add one or more in January, but the idea is to track these ideas going forward.

Do you have any you want to add?

Let the games begin.