Saturday, April 2, 2011

Greed is Good!

“Be fearful when others are greedy.  Be greedy when others are fearful.”
- Warren Buffet

Warren Buffet or Jim Cramer I am not, but what I am is consistent.  For years I’ve been contributing weekly to  Early on I was convinced that I had everything figured out.  I thought the market was easy, it goes up, then it goes down, then it comes right back up.  Just like what JP Morgan said when asked what the market would do, "it will fluctuate." Well it turns out the market is not always as easy I thought.

I have a few investment accounts but this post will focus on my Individual account.  I opened this account in 2004 and invested solely in exchange traded funds (ETFs).  ETFs are essentially a basket of stocks or bonds that track the performance of a specific market index or some other established benchmark (ie - S&P 500).  They offer an investor an opportunity to invest more broadly then investing solely in just one company.  

ETFs are similar to mutual funds.  However, I chose to invest in ETFs over mutual funds for several reasons.  ETFs are traded on an exchange just like stocks.  Their current value can easily be determined and they can be bought or sold at anytime unlike mutual funds, which are priced only at the end of the day.  They also offer much lower expense fees than mutual funds. This hopefully increases the profits that return to the investor.  The lower fees are possible because ETF’s follow a fixed index as opposed to mutual funds, which are run by a fund manager who actively adjusts the fund's holdings. He makes sure he gets his cut before you get yours!         
Over the years, I found several several EFTs that appeared attractive to me.  Savvy investors judge an investment’s attractiveness on things like earnings reports and technical analysis.  I on the other hand went mostly with my gut.  Since I was investing in broad strokes, and I was convinced that if it went down it must come back up, I looked for ETFs that represented unpopular segments of the market and placed my bet.  Hoping that at some point the sector would improve and my holding would go up in value.

My method worked well.  Two funds that I invested heavily in were QQQ (currently traded as QQQQ) and SPY.   (QQQQ is a fund that tracks the Nasdaq 100 and SPY tracks the S&P 500.)  As I continued to buy positions their value kept going up!  Eventually, I decided to search for new downtrodden opportunities.  So I started to add a little bit here and a little bit there.  This is when my plan started to falter.  Many of my holdings were so small that the price would have to go up significantly even to cover my fees if I ever wanted to sell.

I eventually stopped investing money in this account (to fund a ROTH-IRA).  Time goes by... and then the country goes into recession.  Like many others, the recession destroyed the value of my positions. Leaving my collection of small holdings looking even more pitiful.  However, I opted not to sell and continued to hold onto the investments, figuring that the investments were long term and selling would result in an actual loss as opposed to the current paper loss.  

With the recent gains in the market during the past two years the account has nicely rebounded.  A couple of weeks ago I decided that I should reevaluate my holdings and only keep the holdings that I still found desirable. I researched my holdings and decided what holdings I wanted to keep in this account.  Then I determined at what price I could realistically sell each undesired position to clean up my account and free up cash while walking away with a little profit in a short period of time.  I submitted limit orders to sell my unwanted shares and in only a couple of days but all of my orders had been executed.

Now, what to do with the available cash?

Listed below are my current holdings, % gain and plans moving forward:
  • QQQQ: (+47%) - Over the years I bought sold and re-bought this holding a few times.  I'm thinking that it is once again time to take some profits.  Like they say - Bulls make money, bears make money, pigs get slaughtered!  
  • SPY: (+2%) - Over the past 2 years this holding has really gone up in value.  As the economy continues to improve I hope this stock will too.       
  • XLF: (-45%) - This holding has not performed well to date, but I have faith!  I plan on putting some of my freed up cash into this holding.  While the banks are still recovering from the recent financial crisis and many institutions still have bad assets on their balance sheet I expect this sector to improve.  It might not be overnight but it will improve!  Many of the banks are currently upping their dividends or at least expecting to in the near future.  It takes money to make money ~ and the banks have the money!    
  • XLU: (-1%) - Utilities have been in the news a lot lately.  Many feel that we are in a utilities bull market that could last for a few more years.  Plus, utility stocks tend to provide healthy dividends.  (XLU is currently yielding 4.07%.)  I plan on adding to this holding too.
Well what do you think?  Have I lost my mind? Am I heading for big losses or big gains?  
What is your investment strategy?    

Some information provided by:


  1. I stayed far away from funds. I followed most of the advice in Benjamin Graham's "Intelligent Investor", invested in individual companies I was familiar with, and I've done pretty well in the last ten years, for what little I've socked away. My view on funds is pretty simple: if I'm going to lose my ass I want it to be my fault, not someone else's.

  2. Justin here just named the best book I ever read on the subject, but you are missing an important element if you're going to be in funds. You need bonds. Vanguard has an excellent ETF for that, VCLT. Make your portfolio 25% in this fund, and it will act as a hedge against market turbulence, as it tends to rise when stocks fall. Move money between them when the account goes up or down 5%. Easy win.