Sunday Morning Coffee

The poll question from the video drew some interesting responses and questions that I'll try to answer here.

RW has been shooting the lights out with some good short sales, congrats. As far as his question about call writing funds that own foreign stocks; I am aware of two a Blackrock fund with ticker BOE that I own personally and for clients and an ING fund with ticker IGD. I would also suggest checking with Eaton Vance; it seems to me that they have one but I am not sure.

There were a couple comments surrounding the YTD number for the S&P 500. It closed 2006 at 1418.30. It closed Friday at 1479.37. That is a gain of 4.305%. Next add 88 basis points for two dividends (ETFConnect has the yield for SPY at 1.77% and it works out to 5.185%. As for VFINX, the Vanguard fund, I have no idea how closely it tracks the index.

One reader asked what it would take for me to become more sanguine on the markets given the lift. Well lets not forget I might get this wrong but thanks to the snapback noted by some readers in emerging, commodities and a couple of foreign names my having added to my double short fund the day of the discount window cut is not holding me back. It might start to when the snapback effect peters out. As far as being sanguine it just doesn't add up to me that the events that unfolded won't create another down leg of some sort.

I added some double short last summer with bad timing, the market went up a ton and I lagged that up move slightly. I said going into that trade I would be thrilled to lag a huge move up and the same holds true now. If from the low we go up 25% before doing anything else and I lag by 3-4%, that would be a fine outcome. Market up 20 plus percent and you are close either way, you are doing just fine.

As for the discount brokerage question. We use Schwab but I have my HSA at Options Express because Schwab doesn't have an HSA yet. The commissions are in the $15s which is not competitive but everything else about my experience with them has been superior to Schwab by a mile.

The other comments about performance were very useful and it seems as though my thought was unreasonable so apologies for being insensitive. Hopefully I can offer a couple of constrictive nuggets toward these comments.

A lot of the results that were lagging one way or another had some recurring points. People love the closed end funds. I say the same thing about them over and over; moderation. The slapping these funds have taken is far from unprecedented and they will get slapped again during the next financial panic. They do snap back in varying magnitudes but they create volatility when you least want it. Selling during the snapback is probably not a great idea but if you learned you have too much invested I would say to lighten up when things normalize. My weighting is modest and is for areas that are not otherwise easily investible with other products.

One reader ran into problems with stop orders. I have written essentially the same thing about stop orders many times in the past. Stocks go down at different times for different reasons. In that context using the same type of stop order for all times makes no sense to me. And as the reader notes, when do you get back in? Someone is going sell at the bottom tick for every stock. It might be you on your stop order. That will happen every so often and that is OK but if you got stopped out on enough of your holdings at down 8% a couple of weeks ago that it dramatically changed your allocation and you didn't get back in two days later when it took back the 8% figure, well what then?

Mind you, I am not saying I would have jumped in two days later but this all points out that a lot of sales in a fast decline (you gotta be sick of me writing this by now) is a bad idea.

BillB, I said the comment from anonymous was harsh in the context of how defeated the person seemed to be in the comment not that he was picking on you, sorry for the poor choice of words.

Is 72% in fixed income recession proof? Is it mutual funds or actual bonds? Rates are very, very low. Depending on your average maturity you will get crushed if rates normalize and you don;t make changes ahead of time. As a rule of thumb for intermediate maturities; a 1% lift in rates will correspond to an 8% decline in price. Could a ten year treasury, which yields 4.63% today yield 6.13% a year from now if we cycle through a recession and start the next expansion? If so you are down 12%, assuming you go further out than t-bills. That much in bonds has quite a few vulnerabilities, you need learn what they are and hopefully your broker knows the answer.

I will conclude with a reminder of sorts. Constructing a diversified portfolio that does not require a lot of trading (based on the comments I do not think the audience has a lot of day traders) does not have to be complicated. Some exposure to all the big S&P 500 sectors along with some foreign exposure and the realization that not everything will go up at once is a great starting point. Keep the products simple and don't make big bets on anything. These are things you already know how to do.

The picture is from Alaska. That is a glacier (or maybe a fjord) right in the middle of the shot.