December 29, 2012 Look at Me

Risk/Reward Vol. 150

THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.

"I will always be hoping, hoping/You will always be holding, holding
My hand in your hand/I will understand."---lyrics from "Hope of Deliverance" by Paul McCartney

"There is someone/Watching your footsteps
Turn around/Look at me."---lyrics from "Turn Around, Look at Me" sung by the Vogues

"Trying to convince myself/ I've found one
Making the mistake/I never learned from."---lyrics from "Same Mistake" by Drake

Talk about "hoping, hoping!" Clearly, Mr. Market is "holding, holding" on to the "Hope of a Deliverance", with Dow Jones Industrial Average (DJIA) still hovering near 13,000 and the S&:P remaining above 1400. I don't "understand" this hope in light of continued Congressional gridlock on Fiscal Cliff issues and Secretary Geithner's announcement on Thursday that we will reach the debt ceiling on December 31st. Thus, I remain on the sidelines.

As my loyal readers know, I write this newsletter so that "someone is watching my footsteps" as I try to achieve the goal that I set in 2010 and that I announced in Vol. 1 of Risk/Reward (available at http://www.riskrewardblog.blogsopot.com/ ). At that time I stated as follows:

"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 year Treasuries 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."

So, let's "turn around and look at me" to ascertain how I did this year. On the capital that I had available to invest on January 1, 2012 ( I do not count the money that Barb mandates that I keep in cash or the additions that I make throughout the year via pension contributions and/or savings), I made a 6.8% pre-tax return from realized gains and dividends or interest. Not bad, considering I was out of the market all together from mid May through mid July and from mid October through the present (a total of 5 months). If I had kept the portfolio that I sold in May intact through today, I would have seen a 12% pre-tax return for the year. If I had kept the portfolio I sold in October intact through today, I would have seen only a 2.4% pre-tax return for the year even considering the profits I took in May..

Did I "make a mistake" in leaving the market in May? I say no---but in so saying, am I "trying to convince myself" that "I've found one" formula that works--at least for me? Should I have "learned from" the sale in May that I exited too quickly? I do not know the answer to that one. I do know that this year, I was very comfortable with my decisions and that I slept better as a result---and never so well as last night. And so, I continue my quest fully realizing that my learning curve is more like a "long and winding road."

May all of you have a happy, healthy and prosperous NewYear!

P.S. How did you do?