Friday, February 28, 2014

Stock Fund Update as of 2/28/14

Closing Prices Friday 2/28/14:
Nasdaq Composite: 4,308.12 -10.81 (-0.25%)
DJI: 16,321.71 +49.06 (+0.30%)
S & P 500: 1,859.45 +5.16 (+0.28%)
Russell 2000 1,183.03 -4.91 (-0.41%)
GLD: 127.62 -0.58 (-0.45%) SPDR Gold Trust
LQD: 117.32 -0.07 (-0.06%) iShares Investment Grade Corp Bond ETF
TLT: 108.57 +0.06 (+0.06%) : iShares 20 Year Treasury Bond ETF
Stable Vix Pattern^VIX: 14.00 -0.04 (-0.28%) (Bullish)

The Stable Vix Pattern was formed in September 2012. Vix Asset Allocation Model Explained Simply

As noted in the comment section to my last weekly Post, I am attempting to follow the applicable trading strategy for a long term secular bull market in stocks. I am currently above a stock allocation that most financial planners would recommend for someone who is 62. The stock allocation went up slightly since the last update of my stock fund table back in October.  

Generally speaking, the fundamental strategy for a long term secular bull market is buy and hold which simply means keeping my stock allocation at a high level.

It does not mean that I will hold most individual securities for as long as the market remains in a long term secular bull phase. Several stock funds will be held throughout that period, or acquired hopefully in the early stages, with minor pares or no changes. The individual stocks will be subject to what I call "nip and tuck". I may keep some stocks for the entire bull period, while others will be liquidated or pared with other stocks substituted in their place.

One recent shift in the nip and tuck approach was to buy REIT stocks after many of them fell in price by 10% to 20%, and now I am likely to start selling one or two that have risen 20% since my purchase. That is a sector rotation, nip and tuck.

The weight of the evidence is, in my opinion, supportive of the long term secular bull label, as I noted in the introduction section of a December 2013 Post. Long term secular bull markets will have a number of 10% to 20% corrections and at least one 20% to 30% cyclical bear market. The current bull move off the March 2009 lows reminds me of the 1982-1987 move, the first phase of that prior long term secular bull market.

The bull run from August 1982 to 2000 had a 20%+ cyclical bear market which commenced in the October 1987 crash, which is noticeable on a long term chart: Dow Jones Industrial Average (1900 - Present) Notwithstanding that temporary setback, the S & P 500 had over a 14%+ annualized return with dividends reinvested and adjusted for inflation between 1982-2000. The pattern is a somewhat choppy trending up line, ascending at something approaching a 45 degree angle. LONG TERM SECULAR BULL PATTERN 1950 TO 1966

The period preceding that run is a  clear long term secular bear market that produced a negative 1% annualized return calculated on the same basis between 1966 to 1982. Stocks, Bonds & Politics: The Roller Coaster Ride of the Long Term Secular Bear Market (May 2010 Post)

In 2009-2011, I was characterizing the move off the March 2009 lows as a likely (more probable than not) cyclical bull move within the confines of a long term secular bear market, similar to the move made in 1974 to 1976 after the catastrophic phase of a long term bear market occurred in 1974 (similar to what happened after Lehman's failure in September 2008).

1974 or 1982: Start of Cyclical Bull in a Long Term Secular Bear Market or the Start of Secular Bull Market? (September 2009 Post); Stocks, Bonds & Politics: More on 1982 or 1974 (September 2009 Post); The Importance of Identifying the Underlying Causes of Long Term Bull and Bear Markets (June 2011); LONG TERM SECULAR BULL PATTERN 1950 TO 1966/ Long Term Secular Bear Pattern from The Great Depression (September 2009); Stocks, Bonds & Politics: The Big Picture Questions (August 2011).

Irrespective of the characterization, the move had to be played to the upside. Short term bull cycles in long term secular bear markets have been among the most robust rallies in stock market history (e.g. 1933-1937, 1974 to 1976).  The difference is that a cyclical bull move in a long term secular bear must be sold after two or three years generally, whereas an investor needs to transition to buy and hold when evidence supports a long term secular bull characterization. I was able to characterize the move starting in August 1982 immediately as the start of a long term secular bull market. The current situation is not as clear.

I last updated my stock fund table back in October. Stocks, Bonds & Politics: Updated Stock Fund Table as of 10/18/13

The following table contains additions and reflects deletions since that last update, plus a few additions and deletions that have not yet been discussed. The additions include shares purchased with reinvested dividends which were unusually high late last year. The shares purchased with the dividends do not add to the value unless those shares increase in price after the reinvestment.  

Stock Fund Table as of 2/28/14
I include some balanced funds where the stock allocation exceeds 50%. I also include the Permanent Portfolio since the large gold and silver bullion positions scare the OG more than stocks. 

As a general rule, I will adjust my stock allocation by buying and selling stock funds. In 2007, I eliminated most of my mutual funds and pared the others down to 100 or 150 shares except for the Permanent Fund which is viewed as a portfolio designed to withstand most disasters. I sold all of my stock ETFs.

In the event the market rises more than 20% this year, I will sell down some stock funds.  I noted in a December 2013 post that a JPM strategist was calling for a 20% rise this year.

At the current time, I am not likely to invest my cash reserves in either bonds or stocks. I will wait for at least a 10% correction to deploy some of that cash pile. 

Fund Adds (excluding reinvested dividends):

Added to JABAX ($250 discussed, total add $500 during January 2014)(2/3/13 Post)

Added: 100 DPG at $18.58  (2/3/14 Post)

Bought: 100 EWM at $15.23 (1/20/14 Post)

Bought: 100 MSF at $15.18 (12/3/13 Post)

Bought 50 PIE at $18 (12/3/13 Post)

Bought: 100 IAE at $13.02 (11/12/13 Post)

Bought 10 FHLC @ $25.39 and 10 FTEC at $25.12 (commission free ETFs-Fidelity Customers) (10/31/13 Post)

I am in the process of using some cash flow to buy ETFs that can be purchased commission free. The absence of a brokerage commission makes dollar cost averaging with small lots cost effective. I will only briefly mention some of those adds when I update the stock fund table. Today, for example, I bought 5 shares of the Vanguard FTSE Emerging Markets ETF (VWO), which has a .15% expense ratio, and 5 shares of iShares Core MSCI Emerging Markets ETF (IEMG)(.18% expense ratio). The former was bought in my Vanguard brokerage account commission free, while IEMB was bought in a Fidelity account commission free. Emerging market stocks declined today and have been underperforming U.S. stocks for awhile.

Other Fund Purchases (2 will be discussed in subsequent post): +$3,817

Approximate Fund Purchases Excluding Reinvested Dividends: $14,867

Some of Major Year End Fund Share Purchases with Dividends:

Snapshots at

Adams Express ADX (introduction)
Swiss Helvetia Fund SWZ (introduction)
China Fund CHN (introduction)
Permanent Fund Item # 6 Permanent Portfolio (PRPFX)
Royce Micro Cap RMT (introduction)

Fund Deletions and Pares: 

Sold: 200 GDV at $21.03 (11/12/13 Post)

Sold 50 DWX at $48.4 (10/24/13 Post)

Fund Pare to Be discussed in Next Post or Not Discussed=$3,012

Fund Deletions and Pares: $18,116  

Net Fund Deletion: $3,429

When updating this table, I will also attempt to measure whether my overall stock allocation has gone up or down since October. In this section, I will calculate individual stock purchases and sells when the transaction exceeds $1,000, and will assume that lesser amounts just cancel each other out. 

I am omitting from the following compilations stocks that were bought and sold since the last update.

Bought: 50 COP AT $63.68 (2/10/14 Post)

Bought 50 COP at $68.87 (1/13/14 Post)

Bought: 100 RioCan REIT at C$25.65 (10/31/13 Post)

Dollar Value Bought and Not Yet Mentioned: $8,370

Some of those buys, including the Canadian REIT Dundee and the U.S. REIT Digital Realty will be discussed in Monday's Post:

Approximate Additions=$51,965

Stocks Sells:

Sold 100 HUSKF at $29.39 (2/10/14 Post)

Sold 50 UNB at $24.56 (1/25/14 Post)

Sold 105+ CSCO at $21.2 (11/19/13 Post)

Sold 308 TRST at $6.64 (10/28/13 Post)

(Note: For ease of calculation, I assume that 1 CAD=1USD)

Approximate Stock Sells= $25,233

Net Individual Stock Adds: $26,732

Total Net Stock Add= $23,303  (individual stocks +$26,732 minus funds $3,429 )

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