Hot Spreadsheet Action!

Our spreadsheet will never be this cool. 

Last week we mentioned that things were a little weird with how SigFig calculated things, so today is update the portfolio day. We pulled the information from Morningstar to update our portfolio spreadsheet just so we can keep track of things.

Here's our current portfolio sector weighting:

We started having a conversation about whether or not to buy a phone. One of our members was wavering--his phone wasn't working, which led him to think about it being new phone time. But then it started working again, and he started to waver. The decision paralysis set in. Which is a pretty relevant thing to consider. We've all spent more time than is necessary to think on a problem when we could have just acted. By the way, we still need to make a buy.

Profit!

I've been doing this for seven years, and all I got was...

Oh, here's a fun fact:

Based on our rough calculations (and assuming our dividend calculations are correct) since our first purchase in 2010, we've made a net profit of $2.57. We don't even have a lousy t-shirt to show for it.

Our recent buy brought us up in tech and a little more in financials. We are currently low in industrials and energy. See:

We're taking a look at our portfolio and deciding our next move. EWZ has been a drain on our portfolio, and we should have dumped it a while ago. We have our shared account under the name of one of our members. If we do sell EWZ, that means there will be some sort of tax implication to him. Since we've never unloaded any shares, there hasn't been anything paperwork-wise that we've had to account for. Obviously, there is a tax benefit to a loss. But, at least as we understand it now, unless he is itemizing there won't be any effect. Of course, eventually we will hopefully sell shares for a profit, which will have it's own effects. This is one of the funny quirks of being part of a small financial club, but the impacts are germane to any person investing. And it is always important to make sure that you get your forms right with IRS.

The issues with the taxes here is a matter of capital gains and capital losses. It only makes sense to sell EWZ if we can get something that will offset it. Right now, we're certain that it can't go much lower. There's no harm in letting it sit there. We could think of EWZ not as $100, but as -$400. Essentially, we're sitting on a capital loss, and we've sort of banked it. When we decide to sell something for a profit, we could get rid of that at the same time to mitigate the negative tax implications of making an actual profit (a capital gain).

Profit

Ew...

EWE is not one of the funds we're considering

Since AAIT (general Asia infotech) is no longer active, we can narrow our choice down to:

EWY--South Korean ETF
EWT--Taiwan ETF
VGT--Vanguard infotech ETF

Although EWY and EWT are country funds, they both are heavy in infotech and financials, because those are the major exports of each country. Here's the sector breakdown of each:

Ticker	Expense	Yield	Risk Vs Category	Current Price	Top Sectors	Top Companies
EWT	0.6	2.14%	Low	13.64	Info Tech - 52% Financial - 17%	Taiwan Semi - 20% Hon Hai - 6%
EWY	0.62	1.38%	N/A	48.58	Info Tech - 36% Consumer Cyc - 16% Finance - 14% Industrials - 13%	Samsung - 22% Hyundai - 6%
VGT	0.12	1.14%	Average	103.08	Tech - 88% Financial - 5%	Apple - 16.8% Microsoft - 8.1%

VGT looks like it has been the most stable overall. When there was a dip in October, VGT is the one that bounced back the most. Our strategy is to lean toward the most down of the three in the hopes of getting something on the upswing.

As an aside, we've been looking at EWT and EWY for quite some time.

We looked at how each would effect our portfolio balancing. We are about 4% for both infotech and discretionary. You can see in the chart above how they would effect our balance. As far as sector weighting is concerned, this leans us toward EWY because it also has some consumer cyclical, which we are low on. It won't unbalance us as much. If we're looking for balance, this will just leave us short on energy and industrials.

If we are wanting to be more balanced and we want the stock that's suffered the most in the last year, EWY is a winner. Apparently we're crazy about EW things.

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!

Time to make a buy

If it's good enough for TS, it's good enough for me. 

We are really risk-averse, which means that making a buy is something that we just sit and wait on. It's been a year or so since we've made a purchase. At our current savings rate, we get three buys a year, or a buy every four or so months. So that means it's decision time. In order to just make a decision, we are going to go with something safe, like a sector fund or maybe even another round of SPY.

The American economy has been doing well and growing fast, so naturally that makes us skeptical about just getting some more SPY. The next approach would be a sector fund. One strategy is to look for a sector that we think is underperforming. After looking at a variety of Vanguard sector funds (we've been happy with their management costs), we decided that we're going to go with a combination of a few funds.

We compared all of the funds in Google finance. We decided to pick the highest fund, VHT, because we think it might have a little more room. The lowest fund, VDE, an energy ETF consists of mostly oil, so we're skipping on that one. The next next lowest recent performing fund is a materials ETF, VAW, and we're going to give it a shot because it's the lowest performing and the rationale is that there should be growth. Finally, we are lowest on real estate in our portfolio, so we're going to give VNQ a spin, because it recently had a drop that we think will come up. As always we're hedging our bets. This will probably mitigate any big movements either up or down, but that is consistent with our long-term strategy.

Profit.

Buy all the things

We are interested in buying some healthcare and consumer discretionary sector ETFs, however SPY has been on the rise for a long time. Is now the right time to buy funds from those sectors? Those two are part of SPY. We have to figure out if we are comfortable with the idea that SPY, which has been meteoric lately, will continue to go up, up , up.

We will probably go with the Vanguard products for each.

One of our members is currently house-hunting, and he found that the house he was considering was way-overpriced. Even if he wanted to purchase the home, it would be difficult getting approved for a loan, because that would effect the loan to value ratio (LTV). Generally you want your LTV to be 80% or less, so you can avoid paying PMI (more information here). This is another reason why you want a solid down payment of around 20%. This is, of course, not necessary, and you can still make a purchase with as little as 3.5% down, which we talked a little bit about last week.

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

Hot Speadsheet Action!

It appears that your columns are getting a little too familiar with your rows.  

We've been taking a look at the spreadsheet of our portfolio, especially sector weighting.. The moral of the story is that we should be close to 10% for each of the ten sectors in order to have a truly balanced portfolio. But if you take sectors like real estate and financials, we are okay being light here and there, since these aren't investments that work with our current philosophy. We are reluctant to go into real estate, because it just doesn't seem like the safest bet for profits, and financials have burned the economy as a whole in the past. Both of these sectors just don't appeal to us, at least not yet. 

We're overweight in telecom, staples, utilities. These are all the least volatile of the sectors.

We looked for nice, calm investments with dividends, so it makes sense that our portfolio is a little overweight in these sorts of investments. 

Energy and financials are probably about where we want them to be, so we need to focus elsewhere.

We have been focusing on sector-specific buys (ATT was telecom, etc.), and this approach will 

If we went sector-by-sector for the lowest five sectors, our next five buys would end up skewing things in the middle, and we would be back where we started. Perhaps the wise approach is to balance some of our buys, getting two or more sectors at once. We have been on the track of balancing out portfolio one sector at a time, which just may not work. This would be much easier if we were dealing in bigger numbers, i.e. not in $500 increments. 

We're not just trying to balance by sector, but also by geography, for added safety. 

We have this idea to follow a safe, conservative strategy and it might be good to consider whether or not we are actually accomplishing something with this approach. If not, we need to figure out what to change, and possibly re-evaluate our attack. 

Profit!

VDC, VCR, and Gambling on Procter & Gamble

Not THAT VCR.

Today we are looking at the single stocks that make up the biggest holdings in VDC and VCR. With VDC, number one is Procter & Gamble, followed by Philip Morris, Coke, Pepsi, and Wal-Mart. VCR has Disney, Amazon, Home Depot, and Comcast at the tip. On principal a few of these just don't seem like something we are interested in.

We like Procter & Gamble and CVS for VDC and Amazon and Home Depot for VCR.

Let's look at Proctor & Gamble

CVS is currently about 50% above their low for the last year.

Amazon is just too expensive per share, which doesn't fit our buying amounts (we'd only be able to buy 1-2 shares). Additionally, it is has almost doubled in price since May of 2012, which doesn't make growth potential seem likely.

When we're comparing Proctor & Gamble to VDC, we should look not only how they are performing relative to one another, but also at how their respective dividends are paying out.

PG is about 8-9% underperforming.  The yield for PG is 3.1% and VDC is paying out 2.24%.

PG has some qualities that we value in our risk-averse investing strategy. It has a low beta and a decent yield. It might be time to do a little reading on it to get a sense of where it might be headed as a company.

Next we look at Home Depot and CVS.

Profit!

Korea vs. Taiwan: Fight!

We're digging deeper into South Korea and Taiwan, particularly Samsung, but apparently they aren't traded in the US. That said, you can get some Samsung if you go with a fund. We were thinking about  EWY (S. Korea fund), AAIT (regional tech fund), and EWT (Taiwan).

We did a bit of research into Samsung, and they have had some troubles with impropriety, however they do seem to be doing well. The article from the independent mentions the idea that Samsung is so very important to the Korean economy that it may be able to weather any troubles. What we're wondering is if this makes it a good investment.

So it shakes out like this, we are looking at increasing our tech sector holdings. We are both looking to diversify country holdings and balance our sector weighting. We don't have anything in Asia and we have two individual country funds and a regional tech sector fund. Investing in any of these fulfills our objective of further balancing the portfolio. So the question becomes, which will be the most profitable. Isn't it always? Which one is the best fit for us may be a better question.

It may be helpful to consider the volume of each fund, since that will determine the ease of unloading it when the time comes. Additionally, smaller funds may be in danger of closing and being liquidated.

Here are some criteria to consider for further analysis of each:

1. Volume

2. How does it balance our portfolio?

3. Where is it in its cycle? That is, is it on the up- or down-swing?

There are a lot of things that don't look good for AAIT. One, the volume is low. Two, it basically at a 52-week high. However, it is not as heavily in either Samsung or Taiwan Semiconductor, which makes the holdings more balanced. Since EWT and EWS aren't 100% tech, they do bump up our tech sector holdings, but not disproportionately. AAIT would represent a larger
shift in our sector weighting.

For next week, we continue this.

Profit!

Let me google that for you...Taiwan

Looking into [South] Korea and Taiwan, specifically EWY and EWT, respectively, and we noticed that both funds are a little too heavily invested in one company (or umbrella company). This reminds us of the Petrobras incident with EWZ, which we still haven't recovered from. At the same time, it also does the opposite. We did make a healthy profit with AT&T, and that was just one stock. The diversification mitigates both losses and gains. So maybe these are worth a gander.

Here are the main holdings and sector weightings  for EWY:

And for EWT:

As you can see, EWY has more holdings in Consumer Cyclical, which is something that we're trying to beef up in our portfolio. We're also low in Technology. There is less in Financials and Communication in both funds. The only thing that we're severely lacking in is Real Estate, but we all are pretty against really going in on that. 

The next step is to look at where each of these funds is in their respective areas. For example, how do the largest holdings of each fund stack up against each other and their respective sectors? But that will have to wait for next time, kids. 

Tune in when we fight the Riddler, and by that we mean look at more investments. Same profit channel, same profit time.

Profit!

Weighing in on Sector Weighting.

Our current portfolio sector weighting

When we started this experiment, the initial goal was to learn about finance through having a real stake it it. Perhaps true to our personalities, this meant going with a very conservative and reasoned approach to building a portfolio. To date, we haven't sold anything and acquiring new investments has come at a very slow pace. We have tried to hedge our bets a bit by investing globally and across an even spread of sectors. Dividends have played a small part in this strategy as well.

Everything has been focused on slow, steady growth and the portfolio has been humming along.

There was talk about investing in Taiwan. The original idea was that we wanted to invest somewhere in Asia, but the surrounding countries have their own issues, and it seems like something worth looking into. We are pretty low in Tech and Consumer Discretionary, so investing in an ETF like EWT would balance out those sectors a little more. This is good because more balance across sectors protects you against negative changes in the global economy or across specific sectors or funds (EWZ, I'm looking at you). The flip-side, of course, is that it mitigates any growth across specific sectors, but we're a bunch of scaredy cats, so we tend to worry about the bad.

We were looking at IXI, a global consumer staples ETF as well.

For next week, we will continue our research on Taiwan and other Asian options.

Profit!

I'll buy your utilities from you.

We have been really seriously considering maybe buying something, anything...

We're going to go with VPU, a utilities ETF through Vanguard. It has a good dividend, low expense ratio, and covers our need to fill out the utilities sector. We also looking into beefing up our investment in consumer discretionary and staples spending. As a side note, are also quite thin on the real estate sector, but we're a little skittish with that one.

Consumer discretionary and staples spending have been on the rise for quite some time, so we may have missed the boat a bit--we probably should have hopped on in, oh, say 2009.

For next week, maybe another buy...that would be cool.

Profit!

Hadouken as Alternative Energy Source

Harnessing the power from within. Also, take that Brazil...I'm looking at you, EWZ.

This week, we took a look at utilities:

Investment	Pro	Con	Good/Bad
XLU (Utilities SPIDR)	·      Good dividend (2.9%) ·      Low expense ratio (0.18%)	·      The largest company is 10% of the fund. In other words, this fund could be a little more diverse.	The largest company in the fund, SO, is one we are interested in, so perhaps having more of it would be beneficial. Additionally, Exelon is the number two holding (around 8%), and it has not been doing well lately, but there is some potential. Some investors have recently downgraded it, and this might be a good time to catch it on before it swings up.
VPU (similar to above)	Lower expense ratio (0.14%) Higher dividend (3.8%)	(See above)	(See above)
IDU (similar to above)	Yield 3.26%	Higher expense ratio (0.46%)	This fund’s yield is higher than XLU, however it also has a higher expense ratio.
RYU	Much more diversified than the other funds we looked at, with the highest weighting being 2.75%	Highest expense ratio (0.5%)	We lose out on the potential growth or loss of Exelon.

We know that utilities are one of the weakest parts of our portfolios, so this is a balancing act to get our portfolio in line. Our friend's portfolio did not have a very attractive pick, at least not these days, so we wanted to consider some other options. Weighing the pros and cons between the various funds we looked at, we started to get a sense of what is important for us. However, next week we need to spend some time looking at EXC to see if it is worth the gamble. Another important thing to consider with anything dealing with energy is the source of this energy, coal, wind, solar, natural gas, etc. This could give us insight into how well an investment will perform. 

Profit!

Brazil cuts the cable to save money...has to go to bar in Ecuador to watch World Cup.

Oh Brazil, between your crummy economy and you're not wanting to be spied on.

On to investing...

We have been considering GE as a potential investment, but we weren't sure what that would do to our sector weighting, since they do so many different things in such a wide variety of sectors. It is almost like a one company ETF in a way. Then we started to look at EXC: 

Fund/Stock	Pros	Cons	Good/Bad?
EXC is a power company based in Chicago, that is the result of some mergers. It is huge. They might turn on your lights.	High Dividend (4.1%)* Low Beta (0.35)* Helps balance our portfolio since it is a Utility.  Gets us a little more invested in the US *Yahoo Finance	On a steady decline since 2008, especially when compared to others in its sector (see chart below).	This might mean that it is either in the crapper or undervalued.

   

As we were going through the pros and cons of EXC, we decided that it might be good to combine a buy of CHIQ and EXC which would give us a great deal of balance. We compared these to others in their sector and started to realize the both EXC and CHIQ, though great for our portfolio balance might not be the strongest players in their respective sectors. This is the point in the program where we remember that investing is about balancing all those plates you have in the air and not just focusing on that one red one that looks so shiny, so spiffy...oh Fiestaware...

For next week: 

More Avi stocks. 

Profit