Fair warning

[cute fuzzy bunny]

I moved a small amount of cash and bond money into stocks yesterday.

Not enough to write home about, probably about 5% of my total allocation.

Not because I think there are any swell buying opportunities. More because with a working wife now kicking in enough cash to pay the bills I'm taking a longer term, less conservative posture. I'll still keep a big cash lump for any big downside moves...I think we have one coming.

Just thought I'd let you all know that now that I bought some stock, the market crash will occur any minute now.

 

[wabmester]

First you have a kid to help fund our social security withdrawls, and now you try to prop up the stock market during a week with no buyers.

Your selflessness will not go unrecognized, TH. You may end up broke, but we'll remember you fondly

 

[Nords]

So, you're saying that...

... you can be rational or solvent, but not both?

Welcome to the club. I just bought another 2500 Nortel (NT) and I'm dying to short Google, Kmart, PRN Corporation, & PlanetOut.

 

[wabmester]

What's the deal with your NT love affair?  I thought Buffett-heads looked for low price/book.   Doesn't NT have negative book value?    Or are you anticipating that the telecom sectors overcapacity is catching up to demand?

GOOG might be a good short, but then I thought EBAY would be a good short too back in 1998 (oops).

 

[Nords]

Nortel-- not for everyone.  Maybe not anyone.

Not for the faint of heart. It's what Lynch used to call "backing up the truck".

We can't do it on Nortel's financial data, can we? It reminds me of the 2000-2002 restatements of the rest of the sector. (I bet Nortel was messing with derivatives too.) I'd love to calculate price/book or price/sales but then I'd be at the back of the "buy" line behind a thousand other analysts with faster connections.

Nortel's divesting themselves of their low-margin brutally-competitive fabrication business. They're free to focus on innovation & design, which (I hope) is their strength. I'm amazed at everyone's fascination with VOIP and I'm glad that Nortel doesn't own fiber.

Bill Owens, the new CEO, is a submariner who made it to Vice-Chairman of the JCS before he retired. He had so little ego invested in that job (highly unusual among nukes anywhere and especially rare at that elevated Pentagon strata) that he wore his Navy uniform without a warfare pin. (For you non-Navy types, this is the equivalent of working naked.) That had a huge positive impact on the usual interservice rivalries and I think his team-building skills will carry over at Nortel. Anyhow I trust the guy and his communications skills. Bad news has been promulgated early (last month's comment on margins) and he's been hinting at good news (19 Aug). Cashflow is reportedly good (a Buffett criteria, although I'm hardly a Buffett Diehard). But I have to emphasize that I haven't seen any actual cashflow numbers.

The tech & especially telcom sectors have been getting pounded (and they've been begging for it) but I think reversion to the mean is overdue. Since the end of April, sell volume has mostly been light and buy volume has been more effective.

I'll say it again, this is highly speculative hobby-stock money. Our retirement portfolio is in Tweedy Browne, Berkshire Hathaway, and index ETFs. Most of my Nortel shares have been purchased below $3.50 with the regrettable exception of one at $4.50. I certainly wouldn't go on margin with this one and I may end up holding it for a year or two if Bill misses a step.

http://stockcharts.com/def/servlet/SC.web?c=NT

http://cbs.marketwatch.com/news/sto...-82AE-F8FB4FA5F82E}&siteid=google&dist=google

 

[unclemick]

You guys are too tame for me. I just sent off some DCA money in Consolidated Edison, SBC, WTR, and some wild spec. money in AT&T, Aetna and United Dominion(Apartment REIT). You want action - you gotta risk some money on the wild stuff. I plan to DCA thru at least December. heh, heh.

 

[cute fuzzy bunny]

First you have a kid to help fund our social security withdrawls, and now you try to prop up the stock market during a week with no buyers.

Your selflessness will not go unrecognized, TH. You may end up broke, but we'll remember you fondly

I'll be standing around one of these forums with a "Will post for food" sign shortly, I'm sure.

Just a little Vanguard Wellington (100k), a little Energy, which I've wanted to own for a long time but it wont stop going up (25k) and 25k of the high yield bond.

Small bites.

 

[BigMoneyJim]

I'll be standing around one of these forums with a "Will post for food" sign shortly, I'm sure.

Don't worry, I'll fax you a hamburger.

 

[charlie]

Since it is true confession time, I swapped my Value
Index for Vanguard's Windsor II the other day.
Windsor II has a little better track record with less
volatility than Value Index. For those who care,
this was 10% of my "coffeehouse" IRA.

I am also considering using Vanguard's Asset Allocation
instead of the Index 500 fund. AA has almost exactly
the same 10 year annual return with only 70% of the
volatility. AA tracks Index 500 for its stock allocation and
uses long term corporate for the bond allocation. I
need some feedback on this idea, please.

Cheers,

Charlie

 

[Floridian]

Me? I called my banks to negotiate better rates for my cash allocations. Sent in my monthly DRIP check for PAYX as a play on interest rate. Sing 'happy days will be here again' as I update my equity returns.
Usually sleeping like a baby about this time but I'm keeping company with Charley.

 

[ak4195]

Uncle mick nice util plays,im eyeballing the same thing but in the form of 2 out of favor closed end fund,pays bout ~6% .Id be carefull of anything "regular"as far as stocks go,Im looking for a continued yield compression rally into 4th q.Also will be adding to GIM,foreign bond fund,as a hedge against $ falling,todays trade gap was pretty much a "short at will " call on the $,pays approx 5%.Both util funds have about 30% leverage,and they employ rate swaps as hedges against rising rates.If youd like ill post the symbols after i make the initial purchases.BTW,REITS have come back fairly well,cohen and steers has a few nice ones with monthly divvy's.Standard disclaimers apply of course,good luck--ak4195

 

[ESRBob]

Since it is true confession time, I swapped my Value
Index for Vanguard's Windsor II the other day.  
Windsor II has a little better track record with less
volatility than Value Index.  For those who care,
this was 10% of my "coffeehouse" IRA.  

I am also considering using Vanguard's Asset Allocation
instead of the Index 500 fund.  AA has almost exactly
the same 10 year annual return with only 70% of the
volatility.  AA tracks Index 500 for its stock allocation and
uses long term corporate for the bond allocation.  I
need some feedback on this idea, please.

Cheers,

Charlie

Charlie,
My feedback is "well done!". I've owned Windsor II over the value index for years (it always seemed to have a percent or so of edge, and in value investing, I think there can be a reason to pay a guy to avoid the value traps -- stocks like Enron that look like bargains all the way into the toilet).

I also applaud your decision to scrap SP500 for something less volatile, though I do it somewhat differently. Don't know if you have small stock funds, too (eg. VG Tax Managed Small Cap Index) but I now hold only vestigial amounts of the SP500. Something like 35% of its value is in the top 15 stocks, and the last 150 stocks (#350-500) make up only about 5% of the index. So you aren't getting the diversification beyond the Megacaps, in my book. Thus it's volatile. By widening out my US Stock allocation to more value and more small and small value, (blended with equal amounts of short term and medium term bonds,- dommestic and int'l) and some wierd stuff like VG Oil and Gas, Commodities funds, VG Reits, my portfolio has the return of the SP500 with half the volatility. I like that a lot. Dumping SP500 (or at least putting it in its place -- a few % of the total portfolio) was for me the key first step.

Hope this helps you feel a bit better. Now of course everything will go down, but that always happens right after we make a trade, right?

ESRBob

 

[charlie]

ESRBob,

Thanks for the warm fuzzy. My allocation to Index
500 is only 10% of the total port. The remaining
stock allocation is 10% each in Small Cap Index,
Small Cap Value, REIT Index, Total International and
now Windsor II (replacing Value Index). The bond
allocation is 10% TIPS Index, 10% Intermediate
Term Bond Index and 20% Short Term Corporate.
This allocation is what they call the "Coffeehouse".

A basic philosophy of the Coffeehouse approach is to
own each of the 4 corners of the stock box plus
REITs and International in equal weight. The allocation
is shaded toward value by using Index 500 instead of
a pure large cap growth fund and Small Cap Index instead of Small Cap Growth. I hate to stray too far
from this approach. On average, using Asset Allocation
would capture about 65% of the Index 500 return and
would give me some exposure to long bonds. In
reality, it is probably a very minor advantage in reducing
overall portfolio volatility in the long run.

I owned Windsor II for years until last year when
bitten by the slice and dice index bug. Its like putting
an old pair of shoes back on. No qualms whatsoever.

Cheers,

Charlie

 

[yakers]

Chuck-Lyn brought up Vanguard Asset Allocation (VAAPX). I have this in my RothIRA, figuring the bond portion would be more effecient than in an after tax account. It does not hold a lot of bonds right now and I agree with that. It does return about S&P 500 returns. But its allocation just suits my temperment. My 401 type retirement is already 50% in the S&P500 so I don't need more of that fund anyway.

 

[Bob_Smith]

My allocation to Index 500 is only 10% of the total port.  The remaining stock allocation is 10% each in Small Cap Index, Small Cap Value, REIT Index, Total International and now Windsor II (replacing Value Index).  The bond allocation is 10% TIPS Index, 10% Intermediate Term Bond Index and 20% Short Term Corporate. This allocation is what they call the "Coffeehouse".

Charlie, do you adhere to the Coffeehouse allocation for your entire portfolio, or just part of it? What tipped the scales for you in favor of the Coffeehouse approach?

 

[charlie]

Bob_Smith, only 2/3 of my total portfolio (my IRA)
follows the Coffeehouse approach. The other 1/3,
my wife's IRA and our after tax account are in
Vanguard's Target Retirement 2025. Since I am
70, I decided to "slice and dice" in order to manage
withdrawals more efficiently. I am trying to follow
a policy of forcing the stock allocation to grow at
the rate of inflation each year. This will, if successful,
avoid the "reverse DCA" effect of withdrawal from
a balanced fund such as 2025. The only reason I
choose the Coffeehouse approach instead of
Bernstein's typical allocation in "4 Pillars ..." is that
is simple ...... the philosophy is to equally weight all
the asset classes and not place big bets on any one
class. That is, play the game to avoid losing.

Since I am drawing down the Coffeehouse at about
a 6.3% rate it will be touch and go to make the stock
allocation grow at the inflation rate. It has about a
50% chance of lasting about 17 years according to
FIREcalc. In the meantime, we hope to not touch
Lyn's IRA for at least 7 years and maybe not at all if
we convert it to a ROTH over time. Same for our after
tax money. Now you know the "rest of the story".

Cheers,

Charlie

 

[Bob_Smith]

Thanks Charlie. I still haven't read Bernstein (or The Coffeehouse Investor). I think I'll do that and see what all the excitement is about. I've been a Bogle disciple for a long time - it's "the horse I rode in on" as unclemick says. But it's time I take a closer look at some other approaches now that I've retired.

 

[Billy]

Bob,
Be careful...something about changin' horses in mid stream.

Billy
Website www.geocities.com/ba264

 

[Bob_Smith]

Billy, you're right. It would take a lot to sway me though.