Magic 8-Ball, or we also know there are known unknowns

There are two types of people in this world. The shakers and the spinners. You know, you have the magic 8 ball, and you need some answers. You think on it. Eat, pray, love on it, and ask your question. And either you're an animal who shakes the thing, making those weird inky bubbles appear that never seem to leave. Or--or you're a careful spinner. You rotate the soothsaying globe, and you get an unsatisfying answer, and you like it. What I'm saying is nobody knows anything, and we're a bunch of nobodys.

Here's the nothing we don't know:

• Weirdly EWZ is up. This is significant because we've lost so much money on it. At this point, we might as well stick with it. This is another case of how you can't predict the future. Like never. 

• So we've got all this healthcare craziness, and we're holding a healthcare ETF. This would be where we make wild predictions and big decisions. Instead, we're going to wait and see, as is our way. 

• There's a lot of craziness going on with Infosys, but it doesn't seem to be impacting the stock negatively. In fact, it's up. 

So I guess we're just buying more SPY.

Next week, a portfolio check and maybe a decision on Infosys, etc.

Thanks Magic 8-Ball.

Profit.

Shut up and buy something

We are finally putting in a purchase order for  three sector-specific ETFs: VNQ (real estate), VHT (a healthcare), VAW (materials).

There are different types of settings for purchasing a stock through a broker such as Scottrade:

Market order--sets the purchase or sell price at the price that the stock is currently trading at. If the market is currently closed, the transaction will go through when it is open again.

Limit order--sets the purchase or sell price at a specific amount. The transaction will only go through when the market value hits the specified amount. If a stock is set to $50, and you set your limit order to $55, then you buy it at $55. Conversely, if you set a limit order to buy at $49, you won't purchase the stock until it hits $49. Usually you can set a duration for the limit. If your limit expires before it reaches the specified price, you simply don't buy the stock.

There are even fancier options, but we won't get into them here.

For next week, we plan to take a look at something to shore up our tech weighting. It might be international, but right now we're just deciding on some options. We're going to compare VGT, a Vanguard tech ETF, with some worldwide tech or possibly some Asian tech funds.

Profit!

Analysis Paralysis

We have been looking at sector balancing, and we realize adding some health and discretionary sector funds would balance out our portfolio. As far as weighting goes, buying a stock would do the same to balance things, but a stock would likely be more volatile. Another thought is to purchase more SPY when it starts dropping a bit (in the hopes of catching it before an upswing), but that doesn't seem like much fun.

So eventually we want to buy health sector fund AND a discretionary sector fund, but in the name of making a decision we are arbitrarily we are going to look health ETFs.

If you go to FinViz and you take a look at XLV, you'll see an interesting trend:

The purple line represents the psychological ceiling of the fund and the blue line shows the floor.
If we wanted to buy something and were looking for a good in, this trend could indicate that the market will "allow" the stock to keep climbing.

XLY has not broken the psychological ceiling yet:

This comparison shows how short-term volatility can play a role in choosing to get into an investment. XLY hasn't cracked that psychological barrier, whereas XLV has. These lines represent a long-term trend, and the short-term volatility seems to be responding to the logic that these long-term trends are establishing. In other words, the long-term trend makes the market "want" to adhere to the long-term trend, sort of like a self-fulfilling prophecy. Isn't it funny low logical that doesn't sound?

As a side note, adding either of these funds would definitely increase the beta (volatility) of our portfolio. 

Of course, words like short and long term are definitely relative. Our investment strategy loosely defines short term as a a few weeks and long term as several months or more. On the other hand, a day trader might be looking at short and long term being hours vs. days, and a Skynet investment computer is looking at nano- vs. mini- seconds. Who wants to start stockpiling gold? 

XLY and XLV are the iShares Spider ETFs for discretionary and health, respectively. In the past the Vanguard versions of these, because we've noticed Vanguard tends to have lower expense ratios, but it looks like the dividend yield for the Spider ETFs more than makes up for the minor differences in expense ratios. If you take a look at the values for each, you will notice that they are more or less the same. 

VHT vs. XLV

This means that questions of expense ratio, dividend yield, and volume will influence us to go with one as opposed to the other. 

As an aside, it makes sense that VHT and XLV are about the same, since they both track the sector. Each fund is actively managed, so there are some differences in the makeup of each. 

So we're a bit torn between one or the other, and we can't really see much difference between the two. OUr $500 buy increment made the decision for us, since VHTs $125 a share price fits nicely in. 

Who said it was hard to make decisions. 

Profit

I'm walking in the SPDRwebs, leave a message and I'll call you back.

Today, we're comparing SPIDRs to sector stocks. 

This week we are taking a look at some more of our friend's portfolio:

Stock	Pros	Cons	Good/Bad
GLD (a gold ETF)	It is shiny and people like it. This makes it a good hedge for our portfolio.	A $500 buy of gold is a large amount for a hedge, given our small size.	Ultimately, it would be around 15% of our portfolio right now. This may be something to consider in the future when it would be a much smaller portion of our portfolio. Additionally, there may be too many people using gold as a hedge. “I remember when gold used to be hip, now it’s like going to Starbucks.”
FTR (a telecommunications company)	Obscenely high dividend (>9%).	We already have a lot of telecom.	Since we already own ATT for its dividend, this might be redundant in our portfolio.
GSK (Big Pharma)	GSK is healthcare, which we don’t own a lot of. High dividend.	This is not doing as well as XLV, the healthcare SPDR ETF.	This would require more research to see what they’re up to.
GILD (Biotech)	They seem to be on the upswing. It is more healthcare, which we need.	Jim Kramer ranked it as a buy—screw that guy. Not doing as well as its corresponding SPIDR.  It may be too high up at this point.	Research is needed to see if the uptick in prices is justified or just hype.

We kept coming back to the idea that most of these stocks is underperforming compared to their respective sector ETF. GILD is the exception. That is the point of investing in specific stocks, however namely that you are hoping to pick something that will perform better than something else. Since ETFs hedge, you lose out on growth for the benefit of having a safer investment. The big gamble with stocks is believing you can actually predict the future better than everyone else.