THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
Today marks the one year anniversary of my rebirth as a market participant. At various times in my past, I actively managed my money or had others do so. In 2006, when I moved to Eau Claire, I liquidated virtually all of our holdings and invested them in jumbo money market accounts. I missed the run up of 2007, but I missed the 2008-2009 crash as well. Barb and I decided to re-enter the market one year ago today.
On May 10, 2010, I purchased my first 12 positions which are listed on the attached spread sheet (column B is the price as of the close yesterday; column D is my purchase price on May 10, 2010). I purchased these for their yield and with the stated objective of achieving a 6% pre tax annual return as detailed in Vol. 1 of Risk/Reward set forth below. I later modified this objective to a 7% return and placed these securities in Baskerville ("...the 7% solution".. of Sherlock Holmes' fame) Fund I.
One year on (as of the close yesterday), I am pleased to report that I still own 11 of the 12 positions and have added to many of these. The only position that I sold was Annaly Capital (NLY) which I did last quarter in anticipation of the end of QE2 and a rise in short term interests rates which are the life blood of NLY (a real estate investment trust that profits from the spread between short term borrowing rates and the rates on guaranteed mortgages which it buys from Fannie and Freddie).
Moreover, although my objective has been and continues to be 6 (then 7)%, I have made 24%---7% in dividends/distributions and 17% in principal appreciation (increase in share price). Although my benchmark is 7%, I also compare favorably with the Dow Jones Industrial Average which likewise increased in principal 17% over the past year, but which only returned 2.7% in dividend yield.
Although I am pleased, I have no intention of resting on laurels. There is always the challenge of tomorrow and the need to be ever vigilant---especially considering I now occupy over 200 positions (separate buy points) in 80 different companies (for example, I have 4 positions in AT&T (T) and a similar number in Windstream (WIN). But it is always worthwhile to know how one has done. Remember what our friend Lord Kelvin said: " To measure is to know."
From: Busch, John A (14977)
Sent: Monday, June 28, 2010 5:04 PM
Subject: Risk/Reward vol. 1
Sent: Monday, June 28, 2010 5:04 PM
Subject: Risk/Reward vol. 1
This is my first Risk/Reward posting. I send it to each of you with the expectation that you will respond to me individually or to the group. Absent any response (and by that I mean some substantive input), I will assume you have no interest and will not send you any further postings.
As I have explained to each of you, I am in search of a 6%, pre tax return. Throughout most of my life, this would have been a layup. From 1969 through 1997, the 10 Treasury rarely fell below 6%. From 1980 through 1985, they never fell below 10%. So, at this stage in my life all I need is a little inflation. Indeed, right now 90% of my money is parked, waiting for that to happen. Unfortunately, it looks like we are into a prolonged period of stagflation and perhaps deflation. So, Barb and I decided to get off our duffs, and to become more active money managers.
Typically, persons of my age (59) are counseled to be 60% in fixed income; primarily bonds. In normal times, I would agree. However since, 2008, the "flight to safety" has resulted in an unprecedented inflow into bonds and bond funds. In 2008-2009, $400billion of new money went into bond funds while $300billion left stock funds. As a consequence, bond yields (government, municipal and corporate) are depressed----I believe well below their relative risk (Any contrary opinions are hereby solicited). Congratulations to those who were into bonds before 2008. I hope you enjoy the return and/or the premium you get if you decide to sell. I hold a few, but only as an experiment to determine how easy/difficult they are to liquidate.
Equity has been a difficult source of gain, at least for the indiscriminate. The S&P500 and the DJIA have both actually lost ground over the past 10 years. Indeed, the old saws of "Buy and hold" and "Buy an index fund" have been losing propositions. Market timers, such as Bill O'Neill of IBD fame, have done well because they do not allow themselves to ever take more than an 8% loss on any one stock and they exit the market all together when it is in distribution/correction. For instance, O'Neill is basically in cash right now.
In time such as these, Cramer counsels purchasing high quality dividend stocks that are "accidentally" cheap and selling them if they dip too much or if the market takes off and you can do better in growth stocks. For people my age he would have us stay mostly in these widow and orphan plays. In another email I will send you my current holdings and my watch list for comment and criticism.
I am beginning to study preferred stocks. As you know, the financial sector dominates in this area and they are thinly traded, but I am in the process of identifying some that make sense.
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