Thursday, June 21, 2007

Let's See If I Still Have It

Or, Why I went 25% Cash on Tuesday, June 19th, 2007.

In my retirement account I am appropriately invested, which means 100% equity, and probably 50% of that "international" or global or world, and at least 50% of the whole portfolio in small or mid-sized companies.

I can't say that the past year has been particularly stellar for any kind of investment, and most indexes are at or near their highs (except for NASDAQ, which will take a decade to hit it's high) but at least everything is at or near 5 year highs.

That part doesn't worry me at all. In fact, most of the money ever made in the stock market was made when investments went above previous highs. (The very nature of an upward-sloping investment means that overall, time makes you more money than timing.)

So why did I move 25% into "cash"? Because I don't like how the market keeps sputtering at the top.

So why didn't I move 100% into "cash"? Because even with all the fear and bad news floating around, the market is actually chugging along pretty well.

So I'm looking for a buying opportunity if the market dips or corrects a few percent.

I own a mutual fund named Capital World Growth and Income (CWGIX) from American Funds and when you see the picture below, you'll know why I use the Dow Jones to see how well CWGIX is doing. So, therefore, we'll see if selling some of this when DJIA was 13,645 is a good idea or a bad idea...


By the way, www.BigCharts.com is a great resource for stock charts and performance info, that's where I got the chart above.
Eric

6 comments:

Matt Wade said...

So, I'm not much for stocks and really I'm pretty lousey with money in general... i see, i spend.

But, isn't the stock market always at it's high, give or take a minimal percentage? I mean, if I were smart wouldn't I invest cash now for retirement in anything and as long as it didn't flatline then I'd be okay right?

I understand the general principles of the market, you want to give your money to geeks in silicon valley so that they can make a bad ass website, then everyone wants to give them money for the site because it's badass, and then you want to ask for your money back before everyone else figures out that the geeks just bought porsches with their money... right?

I would love to know more about investing, although for me it would still all just be "theory" classes.

Alex Wade said...

Matt -

Invest in yourself. When you have maxed yourself out, and have money left over, then invest in others. You have more inside information about yourself than you will ever get about any other company. Your "board of directors" (Megan) is better-known to you than any other board. Your return on investment will be bigger than any other company IF YOU WANT IT TO BE.

Eliminate debt first.
Have money set aside for emergency, in cash, in your house.
Obtain a few key items to help protect your investment, like the amount of food it would take to survive a few days (while the looting occurs on the streets), a flashlight, a map, and a walkie-talkie or extra cell-phone batteries.

When you have all that (especially the debt-free) then you can start deciding whether other people are smarter or harder working than you and how much to invest in their work effort.

I'm always amazed that people will put money into a 401k when a masters degree would double their income.

And if you don't survive the next Katrina, then your 401k gets divided up by various state agencies...

Buy some land before you buy anything that can be stolen by Enron-like buttheads, too. If you finally find white-collar types that are better able to use your money than you are, then you have to worry about their integrity, too. Why bother.

I've had good luck with Shelby Davis and his family at Davis Funds. Just lucky, though, my research was minimal.

Eric said...

This is exactly the type of conversations I wanted this blog to facilitate!

First off, Alex is 100% right - to some extent.

And that is to the extent that you CAN invest in yourself, I 100% agree. However, there are some caveats that I would like to place on his advice and further the discussion.

1) My 401K is set up to "match" my first 3% of contributions, which is literally "doubling" my money just by putting it in. In that case, it seems foolish NOT to at least put in 3%.
2) This doesn't apply to us, but Alex assumes that someone CAN get an MBA. I work with a lot of people who just plain couldn't.
3) Nothing against MBA's but they are only a good investment for some people. For example, I wish I had one, and I wish I had gotten it 15 years ago. Then it would have made me much much more money. Now, I'm not sure one way or another if it would incresae my earnings, but I am a very special case. MOST everyone who could get an MBA (or any Masters) probably would benefit. Again, I highly respect people with Masters degrees, but I have two of them working under me and either of them probably rather have my salary than theirs and frankly, it would take a lot for them to catch up.
4) This is a bit more esoteric argument, and that is OF COURSE you invest in yourself first, but the difference between investing in savings (retirement) or education is that education pays you more every year of your life as long as you stay in that field. It almost works like golden handcuffs to some extent. So that is a good reason to get educated in a field you really want to be in.
5) There is no doubt at all in my mind that putting money into Matt Wade PC is the best investment you will get.

We probably need to have an "Investing 101" conversation, also, and I will be happy to chat that one up!

Matt Wade said...

So, right now I'm actually making some money, for at least the summer. I am generally making a little over 350 every 2 weeks (10 bucks an hour at about 24 hrs a week, but give me a break, I'm only scheduled 18hrs/wk, and I'm still taking classes) So I immediately transfer 100 to Joint Checking for bills/fun for me and the wifey, 100 to joint savings, for the mansion, and the rest stays briefly in my personal checking and then is sent currently to capital one.

I’d like to live debt free, but 1) after school ends I don’t think I’ll be debt free for awhile due to school loans, and 2) I have this vague notion that the more rotating credit I keep, the better my credit score will be (which will allow me to get the 16 bedroom mansion, instead of the measly 10 bedroom I’ll be able to afford with my bolstering savings). Is this not the truth? The more people I have out there saying, “he’s always paid me on time,” the better, right? I know that the tiny credit limits I have right now don’t build a lot of credit, but they are at least establishing something… no?

I realize that it would be amazing to be able to be completely in the black, but answer me this: Can you ever actually own something?


This question works on many levels, say for instance philosophy, “all we are is dust in the wind” ok hippie, but think about this one, what happens if you pay off your mortgage and then stop paying your property taxes?

OK, that was a tangent… anyways, knocked out another law final today, this means I have 34 out of 90 credit hours down the hatch. In five and a half weeks I’ll have another 4 under the belt… wow.

Eric said...

Hey Matt,
Credit is tricky because it can be a moving target based on the economy as well as your own personal capabilities.

Generally speaking, credit is a function of your ability to repay and the likelihood you will repay.

I saw a black comedian yesterday talking about repossession and he said something funny when a creditor repossessed his car and told him "you still have an outstanding balance" the guy said "if I didn't want to pay for the car when I HAD it, why you think I'll pay for it now that YOU have it?"

Eric said...

It's been a year and a couple weeks. The DJIA is around 11,250. Looks like 20% down roundabouts from when I went cash.

I'm aching to buy. Financials are scaring the crap out of me. Freddie Mac and Fannie May are at they 1992 stock prices.

How can this NOT be a good buying opportunity? Sta tuned, I'll tell you when it's time to get in.