I know this post is off topic, but I just can't resist pointing this out. Take a look at what you wrote about two months ago.
Now take a look at what's been going on with US banks and SHLD. Will you admit that there's a risk in *underweighting* sectors and stocks about which you haven't done any true research? I'm not saying one should *overweight* sectors/stocks that have bad fundamentals, but there's a risk in underweighting them, which is what you recommend.
He then gave an opinion which you can read here. There are all sorts of things here.
First, I believe I talk quite regularly about being wrong with sector decisions and that I mitigate that possibility, not eliminate but mitigate, by never zeroing out a sector. I've never been zero financials--I have been and still am zero weight in US banks. Our financial exposure consists of a Canadian bank, Chilean bank, an index provider and a foreign stock exchange company all of which adds up to less than the 14.8% currently in the SPX.
Further, I talk frequently about an active portfolio being a series of decisions of which some number will be wrong and some will be correct. If you are correct some reasonable percentage of the time then things are probably going decently in the portfolio. If you are wrong a lot then something probably needs to change.
The reader appears to say I have underweighted the financial sector with out having done any research. If that is what he is saying, then he 180 degrees wrong. If thinks that I am telling other people to make decisions without doing research he is wrong. It says at the top of this page that this site about sharing my process, not making recommendations. A lot of his comment is very selective.
A little more specifically to the comment. On January 13th I wrote that I think the fundamentals of domestic financials stink and I still believe that. My opinion that domestic financials stink is either correct and the last two months has been a good trade (I regularly say there will be good trades along the way) or I am wrong and the financials don't stink. It is one or the other.
Since that post the Financial Sector SPDR (XLF) is up 12.84%. Our financial exposure is assembled such that I hope it will be less volatile than XLF and with a higher yield because of what I think is going on with the sector. The one financial we own that does not pay a dividend is up a hair more than XLF and the other items are up less.
As for the Sears comment and that I don't own it, the stock has skyrocketed up 142%. The title of the January post was What Kind of Buyer Are You, as this blog is about my process; I am not a buyer who buys what I believe are lousy fundamentals. Again the fundies for Sears either are lousy or they are not; this an opinion that will be right or wrong but if I believe the fundamentals do stink then I realize the name could easily go up without me--I've lost no sleep over this.
One last point is that the way I manage portfolios, it will be very rare that any opinion I might have about something will be proven right or wrong in two months.
6 comments:
Great thoughtful response Roger...two months does not success or failure make.
You're right...at least for two months and one day!
Kind of off topic....
How you reckon effective (agressive) tax planning,meaningful health insurance, life insurance, LT care insurance, et al. into your retirement mix?
Not looking for advice, but your general thoughts.
I think portfolio construction and maintenance is vital, but so are other events which can cause havoc with the golden decades.
T
T,
I have no professional basis to answer this--portfolio management is distinct from planning and I don't wear both hats.
If you are asking for my personal handling of this issues, my financial and personal life is very simple, perhaps unusually so.
We have no debt and no kids so if I got hit by a satellite our savings would last my wife a long time, all the more so if she took on a paying job (she gets no salary from United Animal Friends).
We've bought no life insurance but I have $50,000 coverage through the FD which would last Joellyn about 16 months before she needed to tap into what we have saved based on current lifestyle.
We have no type of RE investments (we don't think of the house we live in as an investment) or anything else that would allow much in the way of tax planning.
Long term care insurance is a ways off because of our age, genetics and lifestyle--yes anything can happen at anytime. I am 45 and Joellyn is a few years younger so if our health stays about the same then we will need to understand this better in about 15 year--maybe later.
Sorry this is not much of an answer but it really out of my wheelhouse.
Price momentum for some financials has been good enough to trade but the lack of transparency in their fundamental picture -- e.g., FASB approval of mark-to-market "flexibility" (uh huh, righteo) -- still means that risk could be higher than anticipated, possibly much higher, and therefore even better performing financials could be grossly overpriced on a risk adjusted basis.
And of course a number of sectors, from real estate to emerging markets or small caps, have outperformed even the stronger financials since the '08 crash.
WRT long-term care policies, I've heard that the early 50's is the recommended age to look for a long-term care policy but suspect that, like most things, it depends; e.g., if your family was prone to a chronic condition that could lead to disability it would make sense to buy one earlier and the family of a 19-year old son who was brain-damaged in a hiking accident might wish they bought him one as a graduation present.
For most folks though (and I include myself) it might make more sense to establish the funding source/mechanism early on and seek an appropriate policy later. JMO
A while back I read something about long term care that made the case for waiting until something like 70 (mid 60s?) for a policy.
The logic being that it is better to have an expensive premium for a much shorter time frame than to pay in for many years starting at 50 or 55. The article of course found numbers to back it up.
I don't know how things have changed since that article but it made more intuitive sense to me than paying a premium for 20 years.
Thanks Roger
Your answer was more inclusive than I deserved.
I think we agree that a moderate lifestyle and a solid home team enjoying life and working in concert greatly enhances any investment acumen we possess.
T
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