Keiger Index... What Did You Say???

Attendance:  Bickford and Brian

This was a very quick meeting.  A friend of the group asked for the Treynor Measure for our portfolio.  Unable to answer, we took an action item to figure it out.

In the above article, we found a formula to calculate this method of portfolio measurement.

(Portfolio Return – Risk-Free Rate) / Beta

T(Market) = (.227-.008)/1 = .219
T(Portfolio) = (.072-.008)/.65=.0984

The returns/beta were pulled from our SigFig account.  "The Risk-Free Rate" is a 6-month Treasury return.  The article mentions that the treasuries are a good proxy for this return.  The 6-month version was the closest to a year-to-date.  Originally, the 10-Year was used and it yielded a result where the T(Market) was three times higher than our portfolio.  Changing the time-horizon on the treasuries bumped the difference down to a little over two.  The "Risk-Free Rate" has a bit more of an impact than we originally would have thought.

The conclusion that we should draw from the rest of the article is that we aren't necessarily doing as bad as the percent returns might indicate.  Even though, on a percentage basis, we are comparing a 22% return to a 7.2% return, the reduced risk of our portfolio boosts how we are doing.  In real dollars and with the current marked conditions we are under performing the S&P.  If the conditions were different, then that lower risk might do us some good.

Again, the S&P 500 may not be the best benchmark to use against an internationally diversified portfolio.  Until we find something better we will continue to use it.

The US is a growth center in terms of stock values currently.  With the large amount of international stocks that we hold right now we should expect to not be doing as well as the US.

Next Week:  Slowly moving towards a buy.  Maybe a US buy.  Maybe we missed the boat.

Stock Valuation: Part Deux

Members present: Brian (with Justin) and Yousef

Last week we proposed to look at a company and try to examine the financials in order to put some of our recent knowledge about stock valuation to use. We chose Target. With an established company like this it is best to look at the YPEG, or yearly projected growth. We get this by multiplying the stock's projected growth by their current price.

In our quest to understand stock valuation we stumbled across http://www.freestockvalueranker.com, which seems to pull data and do the math automatically. The problem is that we still don't understand the numbers involved yet. 

Here's a screenshot with all those glorious numbers:

We started to crunch some numbers and are beginning to understand the rationale between something being under- or overvalued based on P/E ratio and PEG. They are two different ways of trying to gauge  whether a company is over- or undervalued. The idea is that an undervalued company is expected to some day reach its value, and you are catching them on the upswing. Sort of like being the first person to like an awesome band before they become popular. 

We obviously need to continue working through this before we are prepared to make financial decision based on these valuation methods, but the hope is that we will be able to do that soon. 

On another note, the particular type of sell that we tried to use on our SPY stock saved us from dumping it before it grew a bit. 

No profit now for future profit later. 

The World's a Mess, It's In My...Portfolio?

Members present: Brian, Bickford, Danak

 ENZL: New Zealand is not looking so good as a buy right now. We should wait and see. 

EWZ: Oh my goodness. What a nasty, nasty disaster. Wait and see, hold on hope, recoup losses?

SPY: Doing okay.

AT&T: Hooray telecom.

We talked about two philosophies of buying during a crap economy. 

1. Buy something that is down, because hopefully it will swing back when things recover (assuming the business still exists in the long-term). 

2. Buy something that hasn't crashed, because you think it will remain stable. (See: low-end candy, the dollar store, etc. These are things that do well in a booming economy, but people still need, regardless.)

Granted, all of this is a gamble, but that is the nature of the exercise.

Brian found this daunting article from Random Roger about what the a yield curve is, and what it may say about the health of the economy.

Basically, yield curve is a plot of debts issued for different time scales. For example, a hypothetical 2 year CD might yield 2% interest, a 5 year might yield 4% interest, and a 10 year might yield 5% interest. This yield curve would be increasing and leveling off over time. This would tell us that the debt issuer is doing well. You give somebody money for a longer amount of time, so you should expect more payoff for the added risk of more time.

Here's a nifty graphic explaining the geometry of various yield curve curves.

If you have an inverted yield curve, that means that the longer you carry debt, the less you can expect to get from it. That is a problem. The yield curve is another macro indicator of the economy as a whole.
This is a big concept, and it might require some revisiting in order to fully understand its implications. However, it is useful to try to wrestle with these sorts of things in order to maybe try to be slightly more informed about what is going on.

For next week, we should be getting closer to a buy, but what always is the question.
We should try to take Bickford's idea to find something that still does well in a crap economy. Also, we should take a look at what will make our portfolio more diverse.

Profit!