This Is Going To Be A Long Day

I remember needing a break from the never ending reality of 9/11. It is only 6am (Arizona time) and I need a break. I had no friends or family directly impacted. I have been to ground zero twice.

I'll use this post to catch up on a lot of reader questions/comments.

The three utilities I was referring to the other day were Consolidated Edison (ED), Ameren (AEE) and Hawaiian Electric (HE). The are others besides these, that I own for clients, that don't move a lot and pay a high yield. You need to do your own homework.

One reader asked how I think a semi aggressive person should be positioned with cash and whether I think there will be a buying opportunity and if so what to buy. The question feels shorter term in nature than what I focus on. If I had to guess, which is what this is, I would think anything that has been hit lately is likely to snap back and anything hated has a chance turn around. This is more of a this is how the market works type of comment than a trading call. I just don't spend time trying to figure out what heat to chase.

One comment sought clarification on my notion of just staying close to the market as a goal even if that meant being down 14% when the market is down 21%. This is a complex idea and I apologize if it sounds like I am saying two different things but there is a lot to this. From the really big picture I believe it is true that if all you do is stay close (good and bad) and you have saved enough, which is the most important thing, you have given yourself a great chance of having enough money for when you need it. The market averages 10% a year taking in good, bad and ugly.

While being down 14% vs. the market being down 21% does not sound so great for your emotions right now, the fact is that one or two of those in your investing lifetime will add a lot to your average annual return. Embracing this requires that you can focus on the time horizon of your assets not a given six or twelve month period. There will be bear markets and otherwise down years in your future. Riding them all the way down is not the worst possible thing in the world that can happen to you. If you are lucky enough to miss a chunk of one or two of them I think the impact, long term, can be dramatic.

One reader asked what the carry trade is and whether the coming DBV ETF will fit into my portfolio or not. In the purest sense the carry trade is borrowing money in yen for the low interest rate, converting to US dollars, buying US treasuries for their higher yield and profiting from the interest rate spread. The carry trade has evolved to include other funding currencies besides the yen and different high yielding destinations besides the US. It can be that shorting one currency and going long another can be thought as a carry trade as well.

I'm not sure that I will use DBV. When I first wrote about it I noted that currencies where rates are rising, even if they are not high, also tend to do well and that seems more compelling to me. I own the Swedish Currency ETF and one of the reasons is that rates have been increased several times but are still low.

One reader views high yielding stocks as proxy for bonds. I do not. High yielding stocks, generally, are a great way to bring down beta but they are stocks and if things ever hit the fan in the stock market (terror, crash, whatever) you may not be too happy with the bond proxy idea.

Long time reader Retired in Prescott asked about my background and my firm. I don't delve too much into this because I don't want the blog to be viewed as a marketing piece. He asks if I am a CFP. No. CFP is for planners not portfolio managers. Obviously a PM can be a CFP but CFP is training for things like estate issues, corporate retirement plans and so on, none of which has anything to do with managing money. Our clients span the spectrum in terms of wealth and whether they are still accumulating or living off of their money and won't make anymore.

If he means resume info, I have been in the business since 1984 (which includes jobs in college). I have worked as a file clerk, cold calling broker, an institutional equity trader and a portfolio manager.

He goes on to ask if I specialize in any particular type of portfolio management. Yes, I prefer when stocks go up. Sorry I couldn't resist. If I specialize, and I don't know if that is the right word, the extent to which I add foreign stocks, blend different types of tools and expect that there will be periods I lag (and am upfront about it) might be unique. I'm not taking anyone to the hole on these points but from what I read these points seem unique.

I do try to structure each portfolio to be consistent with the client's ability to withstand volatility. For example every client has some emerging market exposure. But the client's needs and tolerances decide how I access emerging markets and what tools I use for that client. At one end of the spectrum a client might have 2% in the ADRE ETF and at the other end a client might have 2% each in Sinopec (SNP), the Vietnam Opportunity Fund (VTOPF) and CVRD (RIO).