Help with 2007 Allocation

[trifona]

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[brewer12345]

I like Port A better than port B. But even there, I would chop out VTSMX and dial back VGSIX to 10% max, and put teh proceeds in commodities, non-US bonds and TIPS.

[poyet]

Like brewer I like a lot better Port A than Port B.

In any case, I would never ever put 40% in energy at the time, knowing that some big names (not yet CV or XOM) demonstrate that they either are making a top for some time (Total) or that the trend is no longer a friend as it bends (Esso). Same thing in the US for AE, APC, APA, ASPN.OB, ATPG, BHI, BRN, BSIC.OB, BRY, HAWK.O, BJS, BP, BEXP, CWEI, HLX, CPE, CNQ, CFK, LNG, XEC, CRED, DGAS, DNR, DO, EPEX, EAC, ERF, BTU, ENG, EOG, ENT, FPP, FDG, GEOI, GMXR, GPOR.O, CXPO.OB, HAL, HP, THX, IFNY, MPET, MEE, MMR, TMR, MEK, MUR, NBR, NOV (little bear trap ?), NGS, NXY, NE (bear trap ?), OIS, PHX, PKD, PTEN, PGH, PCZ (great short), PZE, PDC, PXC, PWE, PYR, RDC, ROYL, STOSY, SHI, SM (nice short ?), STO (quite ready for a nice short), SGY, FUEL, SUN (what a dive to come), SYNM (cratering), TAGOF.OB, TLM (nice short), TESOF (nice short), TEC, TGE, TRU, TRGL, TGA, UPL (so nice for a short), UNIT (nice short), VLO (such a nice short), WFT, WOC (nice breakdown in June), YPF etc.

Big names are still bullish, but remember that big names always start first when a market takes off and are the last to dive. When they dive your portfolio is already 20/30% down... I did not run stats (I can do it) to get accurate numbers (on how many bull/bear/neutral) as I preferred to have a look at the securities, always better for the "look and feel". I would definitly not put 40% of my assets in that energy market !!!

Funny enough the GICS sectors like .GSPE is bull, .GSPENS gives you a doubt, and .GSPEN is bull, all that indicating that the deterioration is running wide under the surface of the big names having large influence on the indexes. Large ETFs are still Bull as well like XLE, IYE, but OIH is yet not any longer...

Overall, I'm not saying that I would SHORT this market (going short requires more...) but that I would never put a 40% weight in it. BTW, this market suggests that energy prices will either stabilize (no more growth for the sector - neutral) or that they will dive (fundamentals will deteriorate - bear) , all that being probably bullish for the majority of other sectors !

I'm surprised to see (unless it is through the extended mkt index) no exposure to emerging markets where all the growth will come from in the next 10 years ?

Happy investment & trading.

[Nords]

Quote:

Originally Posted by poyet I'm surprised to see (unless it is through the extended mkt index) no exposure to emerging markets where all the growth will come from in the next 10 years ?

Growth, absolutely.

Profits, not so sure.

Take a look at Bernstein's "Thick as a BRIC".

"During the twentieth century, England went from being the world’s number one economic and military power to an overgrown outdoor theme park, and yet it still sported some of the world’s highest equity returns between 1900 and 2000. On the other hand, during the past quarter century Malaysia, Korea, Thailand and, of course, China have simultaneously had some of the world’s highest economic growth rates and lowest stock returns."

I think I can wait until the emerging markets get off the pink sheets and into the small-caps...

[poyet]

Quote:

Originally Posted by Nords Growth, absolutely. Profits, not so sure. I think I can wait until the emerging markets get off the pink sheets and into the small-caps...

I agree with you Nords, one should not be mistaken, growth is not profit. Undoubtedly this explains the deceptive returns of the Chinese market - say Shanghai composite index .SSEC (HK is not China) over the period 1992-2005. But the breakout we had on Feb 2006, and the all time high the SSEC is just making and breaking now indicates something which I dare make an assumption about.

The hypothesis is the following. People know that growth is impressive, therefore they invest 1991-2001 but get little return for their investments as the growth consumes the returns to fuel growth. Then we have a worldwide dive 2001-2002 but the SSEC does not go south very much. Then one thinks that the Chinese market will take off as all other world markets, but it does not, instead it dives despite the huge growth of their economy and companies until the end of 2005. So What ?

The market dives, until companies and Chinese leaders in general understand that to keep fuleling their growth, to keep raising money (which they fail to on a downwards market) they need not only to deliver growth but must "display" profits and they also need to pay dividends, they need to pay for the capital they use.

This is my interpretation of the major upturn in Feb 2006. Since then the market has made 100%. I got in on the 14th of Feb at 1276, SSEC is @ 2344. Unfortunately I was too shy and bought regularly but small positions, so 100% of a small chunk is better than nothing but leaves frustrations. BTW investing is the most frustrating activity I know !

My Understanding, is that all emerging markets will face the same situation at some point. I guess, that it is not that they fail to make profits, it is that they failed paying for the capital they used that reined in the market returns. In fact instead of making profits they preferred reinvesting and fueling growth. But they need more capital for their growth and they have to acknowledge that they must display profits in their balances to raise more cash.

As soon as this happen, we'll move from a growth only policy to a growth and profits policy. And those who will have seen it, and have durst putting big in it will be the next big winners.

Who knows

[poyet]

Nords, back from my warehouse not standing up any longer but after having read interesting Bernstein's paper. A couple on comments though:

- at some point it is not that much interesting to own shares (even if you own more after dilution making the assumption that you're one of those who benefit from these stock plans and design them) if these shares do not move up. So dilution should regulate itself as you do not just need more shares, but shares having greater value ;

- UK 1,49% and France 3,47% have had very different dilution rates and this should be reflected by major differences in their markets' evolution, which I do not see obvious ;

- my eastern europe and russian stocks have doubled these last 18 months. Matter of fact dilution or not ! Should have bought more.

Still, the paper was very interesting.

[Nords]

Quote:

Originally Posted by poyet to keep raising money (which they fail to on a downwards market) they need not only to deliver growth but must "display" profits and they also need to pay dividends, they need to pay for the capital they use. ... and they have to acknowledge that they must display profits in their balances to raise more cash.

Quote:

Originally Posted by poyet - my eastern europe and russian stocks have doubled these last 18 months. Matter of fact dilution or not ! Should have bought more.

I'm quite happy with our profits in developed markets. It astounds me that Tweedy, Browne's heaviest holdings are in those hotbeds of free wheelin' capitalism unleashed-- the Netherlands & Switzerland.

But I wonder about the degree of political risk in developing countries. Not "political" as in "We're nationalizing your assets", although Putin has shown little fear of doing so, but "political" as in "They wanna see profits, we'll give 'em profits".

I'm sure that China et al wouldn't be influenced by the teachings of Enron & NASDAQ 5000. Even if those countries lack an SEC or an Eliot Spitzer or a free press!

There are handsome profits to be made in those developing markets, but it all seems to boil down to investing on momentum with a trailing stop and hoping that you're standing closer to the exits than anyone else. Witness Thailand's fumbled financial constraints over the last couple weeks.

Quote:

Originally Posted by poyet Who knows

Exactly. I find that I extract a much greater degree of comfort from Warren Buffett than I do from any of the other people, organizations, or governments mentioned earlier in this post.

How's your autonomous investment software doing-- what does it know about emerging markets?

[poyet]

Quote:

Originally Posted by Nords How's your autonomous investment software doing-- what does it know about emerging markets?

Well, quite fine althought very contrasted. We made more or less a 0% return trading a US-based tech universe these last two years, but a bit more than 100% over 18 months trading broader EU stocks. We need trend and fear whipsawing markets (exactly what we had on US tech stocks).

As far as emerging markets are concerned I have no direct access to them, i.e. a complete database of listed stocks on these markets with a daily update through a reliable provider. Therefore, I just invest as everybody through funds, but as you've indicated doing a bit of momentum timing. But I just have 3-4% of my financial portfolio (FP) invested in them, knowing that my FP is about 13-14% of my NAV (the rest being RE as you know). I've kept pumping as much money in the FP as I can, but RE cap appreciation has given it no chance to grow in relative terms. !

[Nords]

Quote:

Originally Posted by poyet Well, quite fine althought very contrasted. We made more or less a 0% return trading a US-based tech universe these last two years, but a bit more than 100% over 18 months trading broader EU stocks.

Is that portfolio denominated in euros? I wonder if the dollar's performance (and Europe's improving financial performance) could explain that result.

Quote:

Originally Posted by poyet We need trend and fear whipsawing markets (exactly what we had on US tech stocks).

Doesn't everybody? "Be fearful when others are greedy, and greedy when others are fearful"...

[poyet]

Quote:

Originally Posted by Nords Is that portfolio denominated in euros? I wonder if the dollar's performance (and Europe's improving financial performance) could explain that result. Doesn't everybody? "Be fearful when others are greedy, and greedy when others are fearful"...

The Eu portfolio is in Euros and the US in USD. The difference stems simply from the fact that one market had trend (European) whereas the other US Tech did not.

Ths system chases and performs on trending markets (Bull or Bear), therefore we fear non-trending markets !

[Nords]

Quote:

Originally Posted by poyet therefore we fear non-trending markets !

Ruh-roh.

[Ed_The_Gypsy]

Looking at the charts for VGENX vs. VGTSX for the past 5 years, they do not appear to track all that well. They look like relatively unrelated markets to me, but they do both go up.

I hold VGENX but do not count it as part of my 50% international exposure.

Am I right? Time will tell.

[trifona]

After having some more time to digest the issue and read you comments as well as doing some more research, I've nixed the idea of adding the energy fund at this time due to valuations as well as the size of the minimum investment. I've also lowered my exposure to international markets since I do not want to chase returns. I've increased my large cap exposure where I was lacking before, relying on small caps throughout much of the last few years:


20.6% VEXMX Vanguard Extended Market Index
17.3% VISVX Vanguard Small-Cap Value Index
14.1% VIVAX Vanguard Value Index (Will Receive 401K Contributions)
12.1% VGSIX REIT Index
12.1% VGTSX Vanguard Total International Stock
10.2% VIMSX Vanguard Mid-Cap Index
8.0% VFINX Vanguard S&P500 Index
5.7% ROH - Rohm & Haas ESOP Fund (Will Receive 401K Contributions)

[lswswein]

I think you will see a lot of overlap between VEXMX - Extended Mkt and VIMSX - Mid Cap Indx. You could infact get rid of one of them and increase allocation to the Small Value and get a portfolio which is very similar. Just something to look into if you want to decrease the number of funds without loosing the diversification benefits

-h
p.s: The following is an approxmiation. I think you can split VEXMX into 60 Mid, 30 Small & 10 Micro. So you could take the allocation to VEXMX and split it 60/40 between VIMSX and VISVX and get something very similar

[trifona]

Quote:

Originally Posted by lswswein I think you will see a lot of overlap between VEXMX - Extended Mkt and VIMSX - Mid Cap Indx. You could infact get rid of one of them and increase allocation to the Small Value and get a portfolio which is very similar. Just something to look into if you want to decrease the number of funds without loosing the diversification benefits -h p.s: The following is an approxmiation. I think you can split VEXMX into 60 Mid, 30 Small & 10 Micro. So you could take the allocation to VEXMX and split it 60/40 between VIMSX and VISVX and get something very similar

Yeah I know, this has always annoyed me as well. The reason for the different funds within the same class is that one is through my Vanguard IRA and the other within my 401K. I built up the position within the one account before starting the new one in the other. I've never rolled-over the old 401K because it allows me to trade in and out of my old employer's stock (refiner). They both offer very similar performance, and expense ratios. I like VEXMX because it represents the broad market minus the large cap S&P500 stocks. I've always been up in the air about what to do about this overlap. Same issue of overlap come to the forefront when trying to select large cap funds; it seems that regardless of whether or not you are looking at a large cap index fund or an actively managed fund, you always see the same major holdings in both.