Based on last week’s feedback, it appears that readers prefer reading an “update light” rather than a serious, statistically laden analysis. I received a number of candid comments and opinions and I’ll address a couple this week as apparently, the Beatles Money theme inspired a few of us to assess our investment strategies.
Saturday, July 14, Woke up got out of bed at 5:15,
Dragged the comb across my head
Found my way downstairs and drank a cup
And looking up, I noticed I was late*
Considering that I had to be at the golf course at 6:15 and then back home by 11:00. My wife Marea is playing 27 holes of golf today and I am writing the update you are currently reading while attempting to simultaneously entertain my six year old daughter.
Not an easy task.
Between writing paragraphs, I’ve been playing with a few Barbie dolls (manufactured By Mattel, MAT, $31.23) while watching the Disney Channel (DIS, $48.19) and noticed something surprising. I thought Barbie was a pretty teenage girl doll who dated a guy doll named Ken. This is not the case at all. Barbie is a trade name and all Barbie dolls are actually different girls. Since we only own one Ken doll, I imagine that he must date all the girls. Not a very high benchmark for these little girl dolls if you ask me, but a perfect way to launch into our first topic.
One reader wrote that there isn’t a reason for his portfolio to have a performance benchmark since his goal is income and capital preservation. Think about it, don’t you have a benchmark of sorts established for your landscaper? Or, if you decide to open a capital preservation/income generating CD at a local bank, would you not compare various bank CD rates? Well, doesn’t an advisor who may charge $5,000 in fees on your $500,000 life savings warrant a benchmark as well? Not benchmarking your portfolio is undoubtedly, a pernicious decision or as Blue said in the movie Rio, “not cool.”
In essence, we are always establishing benchmarks. Consequently, every portfolio should be evaluated based on a reasonable benchmark accounting for risk and asset type versus a bruited performance assessment.
Another reader attempted to illustrate that there is no reason for a portfolio to be populated with any security other than Apple Computer (AAPL, $604.97). He also stressed that Apple’s stock posted a blockbuster return in the second quarter of this year. As many of you know, I am a big fan of AAPL, which has been one of my largest personal holding for several years. But without appearing bumptious, I must emphasize that populating a portfolio with only one position, regardless of the company’s dominance, is not investing but is simply a game of chance – and, the only long term gambling winners are casino owners.
Over the past few weeks, equity markets plummeted for six straight days before a miraculous 200-plus point recovery on Friday. As suggested in my last update, I did add cash to conservative equity positions such as First Trust Morningstar Dividend Leaders [FDL 18.87 0.22 (1.18%)] throughout the week but by late Thursday, I thought I should have been selling instead of buying. Then, on Friday, out of nowhere, the Dow shot up like a rocket.
My partner George and I were reviewing Friday’s results and frankly we had trouble understanding why the market took off. Saturday morning while “maxing out” with a score of 7 on the par 4, 13th hole, I concluded that Friday’s gain was primarily based on less than stellar economic news out of China. A lineup of economic data including the country’s GDP, fell short of investor expectations, which may ultimately lead to further Quantitative Easing (basically defined as the Central Bank pumping money into the economy). QE is to investors what a hot fudge Sunday is to my daughter Taylor on a hot summer day. Global equity markets are addicted capital being injected into economies, hence bad news is often viewed as good news, which may ultimately provide investors with an additional fix from a warm gun.* If the Fed comes through again, markets will likely continue moving higher.
Regardless, expect the volatility to continue throughout the hot summer.
After spending time with Barbie and her dream house, Taylor and I laced up our Nike footwear (NKE, $93.97) and decided to do lunch at the food court located in the North Shore mall. We were undecided between Dunkin Donuts (DNKN, $34.71) and McDonalds (MCD, $92.29). We settled on a Happy Meal and Chicken Selects.
I will continue to cautiously put cash to works in the securities mentioned above only on down market days. My recommended core position (FDL) is now up 9.31% year-to-date outperforming both the Dow and S&P with significantly less downside risk.