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Sell Commodities, EM, International ...
Old 05-04-2006, 08:13 AM   #1
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Sell Commodities, EM, International ...

Bill Miller from Legg Mason Value Trust suggests that it is time to sell commodities, emerging market, non US assets, and small and midcap stocks since they are hot now. It's time to buy large cap stocks since they are cheap now. He believes that there is a 5 year psychological cycle - that is, people want to buy today what they should have bought 5 or 6 years ago.

His article: http://etfinvestor.com/article/9974
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Re: Sell Commodities, EM, International ...
Old 05-04-2006, 08:21 AM   #2
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Re: Sell Commodities, EM, International ...

I see. Miller wants us to sell everything that he doesn't manage.

I agree there is something to his idea of the psychological cycle. But the best way I know of to escape the cycle is to avoid listening to the commentary of the hour and stick with a diversified portfolio. You know, not selling commodities, EM, EAFE, etc. just because some purported guru says so.
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Re: Sell Commodities, EM, International ...
Old 05-04-2006, 08:55 AM   #3
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Re: Sell Commodities, EM, International ...

I'm starting to think large cap stocks will outperform most other asset classes in the next 5 years. They haven't had a big run-up and almost all the other asset classes have. Also, looking at P/E ratios suggests large cap stocks are more fairly valued right now (and they are usually considered lower risk than other equity asset classes).

I haven't changed my portfolio allocations as a result of my opinions. I'm well positioned to benefit from large caps outperforming due to my diversified portfolio.
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Re: Sell Commodities, EM, International ...
Old 05-04-2006, 09:36 AM   #4
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Re: Sell Commodities, EM, International ...

Quote:
Originally Posted by brewer12345
I see. Miller wants us to sell everything that he doesn't manage.

Gee, I wonder if he has any suggestions on where I might invest my large cap allocation :


Invest, rebalance, ignore gurus, go fishing

That's how I see it
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Re: Sell Commodities, EM, International ...
Old 05-04-2006, 09:47 AM   #5
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Re: Sell Commodities, EM, International ...

I hold XIC/TSE, it is the ETF for the Toronto Stock Exchange and includes Barrick Gold, Trans Canada Pipelines, Canadian National Railroads, Toronto Dominion Bank, plus others.

I don't care what the flavour of the month is, diversified across all sectors, including commodities.

That is why ETF's work for me, I am not chasing analyst's touts.

Oh Yeah, someone better tell China and India they don't need Oil, or that the Central banks should not purchase Gold, that Cement won't be needed for all those new Highways.

I am looking too add Pfizer , but that is a Dividend Play, I don't care what the stock does, I want the Dividend.

I will buy DIA/NYSE when the market gets really trashed or when $ CDN hits $0.95.
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Re: Sell Commodities, EM, International ...
Old 05-04-2006, 12:51 PM   #6
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Re: Sell Commodities, EM, International ...

Quote:
Originally Posted by Spanky
Bill Miller from Legg Mason Value Trust suggests that it is time to sell commodities, emerging market, non US assets, and small and midcap stocks since they are hot now.
My gut tells me the same thing.

I have to keep reminding myself that there aren't any brain cells in my gut.
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Re: Sell Commodities, EM, International ...
Old 05-04-2006, 01:34 PM   #7
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Re: Sell Commodities, EM, International ...

Quote:
Originally Posted by justin
I'm starting to think large cap stocks will outperform most other asset classes in the next 5 years.
I've been hearing that for five years... almost since they stopped outperforming!

Since I've sold off the Tweedy, Browne in our IRAs I've been buying PID. It holds a lot of large-cap dividend-paying stocks that should theoretically profit from a large-cap rebound and a falling dollar.

In the process I've realized a pathetic truth about ETF investing that bodes ill for mutual funds. PID has a pretty skimpy average share volume-- less than 100,000 per day-- so I can't just plonk the entire amount (from four separate IRAs) down all at once without goring ourselves on the share price.

OTOH I'm saving at least 0.8% per year on the ER by going from Tweedy to PID. Even after paying the commissions for multiple share purchases of PID, we're still way ahead.
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Re: Sell Commodities, EM, International ...
Old 05-06-2006, 02:59 AM   #8
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Re: Sell Commodities, EM, International ...

Nords:

I've been interested in PID ever since you brought it up in a prior thread.

Can you explain further what you mean when you stated that PID has a pretty skimpy average share volume so that you "couldn't just plonk the entire amount down all at once without goring" yourself on the share price? Why would there be a problem in putting the entire amount in all at once?

Toejam

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Re: Sell Commodities, EM, International ...
Old 05-06-2006, 11:05 AM   #9
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Re: Sell Commodities, EM, International ...

Quote:
Originally Posted by Toejam
Can you explain further what you mean when you stated that PID has a pretty skimpy average share volume so that you "couldn't just plonk the entire amount down all at once without goring"* yourself on the share price?* Why would there be a problem in putting the entire amount in all at once?
I've sold off a big chunk of our international holdings and now that big chunk has to be invested in another fund. This is lump-sum investing in a stock, not DCA'ing into a mutual fund. I'm concerned that PID doesn't have enough daily trading volume to absorb a lump-sum buy without spiking the price.

Here's an example of what a large trade can do to a fairly liquid stock. A couple days ago Polymedica (PLMD) was trading at about $38 on a share volume of about 250,000 shares/day. Morning trading had already knocked the price down from $39 when someone sold a million shares during the lunch break when trading was light. The price nosedived to under $36 and then bounced back up to $38.50. Somone was so eager to unload 1M shares that they cost themselves at least $1M on a $36M-$38M transaction (let's call that 3%). This lunchtime spike doesn't even show on the daily trading charts until you zoom in on Thursday noon in 5-15-minute increments. Yet this is a stock with a fairly big volume that's followed by a lot of analysts & market-makers, and I didn't notice it until Brewer pointed it out. In a thinly traded stock this is not uncommon and it could be even worse.

For some hypothetical PID numbers, let's say that 100,000 shares change hands every day. (The actual average share volume is about 120K/day but some days have been as little as 45K.) If I buy 1000 shares, I'm 1% of the daily market volume. A mutual fund giant like Fidelity buys & sells enough stock/bond shares every day to comprise about 10% of America's daily market volume, so in PID's tiny little pond I've just become a comparatively big fish. PID has little liquidity and few followers, so it doesn't take much of a cannonball to make a big splash.

If I buy a big chunk of shares at the market price, that demand drives up the price. Imagine if that purchase was 5,000 or even 10,000 shares. I'd have my very own volume spike in PID's daily charts. I'd drive demand all by myself and the price would jump accordingly. So if my 10K share purchase drives the price of PID up by even one cent (from $17/share to $17.01) then I've just cost myself $100. Of course that's a pitiful fraction of the $170K value of the purchase but 3% would have been over $5000. When you consider that Fidelity charges as little as $8 commission per purchase, it can actually save a little to spread that purchase out over five or even 10 smaller transactions to avoid a $100 spike-- let alone five grand.

PID is even less liquid. If that share price bounced a buck (followed by a retracement similar to PLMD) then I've cost myself $10K-- now we're talking real money in some slimy market-maker's manipulative mandibles. Considering PLMD's price behavior, not untypical for this type of volume, I'm reluctant to experiment.

There are other problems to consider, of course. One issue would be how much PID goes up on its own while I'm trickling in the money. It's gone up about 15 cents a share over the last few days, so each day that I didn't buy 1000 shares has cost me $150. Bummer, but it's a lot less than $5-10K. I'm losing a little potential profit every day in order to avoid losing more at once. But my interpretation of the PID charts is that the price is at the high end of its trading band, so I don't feel bad (yet) about trickling in the money while waiting for the share price to retract a little. I think the price will drop a little next week, and I'll be there.

One final point on these nickel-dime considerations. TBGVX's expense ratio is currently 1.39% and PID's ER is 0.5%. Let's call the annual savings 0.8%. For the amount of money we're moving into PID, the amount of expenses we'll avoid in the first year alone is an order of magnitude over the cost of the commissions. If I drive the price up with a huge lump-sum purchase, though, then I wipe out those potential savings while only saving a few $8 commissions.

Finally, these are short-term timing issues driven more by emotion than by logic. As Brewer's pointed out before, it's time in the market that counts-- not timing the market. Although costing myself a year or two of expense-ratio savings is probably not that important over the 25+ years that we'll be holding these shares, it's still emotionally important to me to complete the share purchases in a way that doesn't significantly affect the share price. Call it testosterone poisoning, but I'm not eager to lose money immediately while consoling myself that it's insignificant in the long run.

However the thought of 25 years of reinvesting a 3% dividend in a Roth IRA is pretty yummy. The account will double even if the dollar doesn't drop and the share price doesn't move...
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Re: Sell Commodities, EM, International ...
Old 05-06-2006, 03:29 PM   #10
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Re: Sell Commodities, EM, International ...

Nords:

Thanks for your explanation. I've never been much of a market-timer and have always just plonked the entire amount into mutual funds, stocks, etc. at one time, thinking that "dollar-cost averaging" shouldn't matter much in the long term. My thinking has always been that 5 or 10 years from now, the value of the investment would (hopefully) be higher than what it is at today's prices.

And I've always had the concern (which you alluded to) about lost time/ lost market gains while I am "waiting and contemplating and analyzing" about even making the investment. For example, I purchased FSCOX (Fidelity Small Cap International Opportunity), EEM, and FXI last year - just threw the entire amount into each one at once. Same with MINDX (Matthews India Fund) -threw the whole amount in at one time, shortly after the fund opened. All have made substantial gains since. I don't think I'd be as far ahead if I had waited: Your "analysis - paralysis" analogy fits here. (Now watch all of these tumble next week - hehe).

Still, as you and Ben have mentioned, it sure would be nice if there was a Small Cap International ETF with a low ER available. I didn't want to wait so I got FSCOX, which has been doing pretty well so far.

On the other hand, I sure hope some of these Large Caps improve. I lost over $40,000 in MSFT the day it dropped over 11% last week. That more than wiped out the $38,400 one-time dividend I received in 12/04. #@&%#@!!! Ouch! Thank God I didn't reinvest that dividend back into the stock. Still holding on for the long term, though. In Bill Gates's words: "Make no mistake -this is hypercompetition" with GOOG!

Spanky: Still waiting for my other big caps like GE, C, PG, WMT, C, INTC, CSCO, JPM, MRK, and PFE to do better. In the meantime, I do not plan on selling any of my Energy, EM, Small Cap, Foreign, or REIT holdings.

Toejam
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Re: Sell Commodities, EM, International ...
Old 05-06-2006, 06:02 PM   #11
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Re: Sell Commodities, EM, International ...

Quote:
Originally Posted by Toejam
Thanks for your explanation.* I've never been much of a market-timer and have always just plonked the entire amount into mutual funds, stocks, etc. at one time, thinking that "dollar-cost averaging" shouldn't matter much in the long term.* *My thinking has always been that 5 or 10 years from now, the value of the investment would (hopefully) be higher than what it is at today's prices.*
And I've always had the concern (which you alluded to) about lost time/ lost market gains while I am "waiting and contemplating and analyzing" about even making the investment.* *For example, I purchased FSCOX (Fidelity Small Cap International Opportunity), EEM, and FXI last year - just threw the entire amount into each one at once.* Same with MINDX (Matthews India Fund) -threw the whole amount in at one time, shortly after the fund opened.* All have made substantial gains since.* *I don't think I'd be as far ahead if I had waited:* Your "analysis - paralysis" analogy fits here.
For mutual funds and large-cap, very liquid stocks, the conventional wisdom is to buy in lump sums. The market goes up 75% of the time and DCA just loses money as the market rises.

Actually investing your hunk of dollars is the problem that the fund manager has to worry about, and in the long term everyone's lump-sum investments contribute to fund bloat. Some mutual funds need literally weeks of daily buying to establish or to close out a position.

DCA's only virtue is that it accustoms investors (in the accumulation phase) to the discipline of making regular periodic purchases. Otherwise they'd pile up cash to time the market, and that money would inevitably trickle away for other consumer "necessities". I'm not sure that there's any virtue to DCA in the distribution phase of an investor's life. I'd rather raise our spending cash when an investment is fairly valued (or when we're stopped out) or as part of year-end tax planning.
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Re: Sell Commodities, EM, International ...
Old 05-06-2006, 07:33 PM   #12
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Re: Sell Commodities, EM, International ...

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Spanky: Still waiting for my other big caps like GE, C, PG, WMT, C, INTC, CSCO, JPM, MRK, and PFE to do better. In the meantime, I do not plan on selling any of my Energy, EM, Small Cap, Foreign, or REIT holdings.
Toejam,

I keep all my holdings including small cap, EM, International, REIT, and commodity funds. According to Jeremy Siegel, large growth stocks such as MRK, PFE should do well soon.

Spanky
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