Eileen's picks

First month review

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Life is fascinating. Stock picking is fun or infuriating, depending on the day. Agonizing over how much to invest in any given stock is not fun, not for me.

To minimize the agonizing I use a "diversification across asset types" system - in "real life" and in this competition. I set a "percentage of portfolio target" for each asset type and NEVER allow any type except cash to exceed its target by more than 8%.

For the Open, I set targets at 40% in US equities, 30% in foreign, 6% in real estate, 9% in commodities and 15% in "safe stuff". These are percentages I think are realistic for a family trust or Roth IRA or any other long term investment fund, especially one that is tax deferred.

Here's how my SLO portfolio stands at the moment in relation to the plan: Bianca and I have 71% of our funds in equities and we intend to have 77%. We plan to have 60% in growth, 25% in value and 15% in blend or core holdings. Currently we're at 43%, 42% and 15%.

In the most important part of the plan, asset diversification, we plan 40% in US equities and have 26%, plan 30% in foreign and have 32%, plan and have 6% in real estate, plan 9% in commodities and have 8%, and plan 15% in "safe stuff" and have 29%.

This week I set target allocations for commodities: I plan to have 25% each in water and commodities futures and 50% in energy. Right now I'm at 30%, 12% and 59%.

The allocation by capitalization: 48% large, 42% mid and 10% small is out of line because we're looking for something more in the neighborhood of 60%, 30% and 10%. I'm stymied here because to fix the allocation (and to make my portfolio compliant with the ETF percentage requirement) I need to sell some IWP. Unfortunately, the Marketocracy system simply won't sell some ETFs, and mine was one of them. Fortunately for the compliance part of the equation, I've been given immunity from non-compliance until Marketocracy notifies me the problem is fixed. If you have too much in exchange-traded funds and can't get the overage to sell, you may want to notify the Marketocracy people of the symbols giving you trouble.

And then there is sector allocation, a bit trickier to calculate with confidence. See explanation in this post.

I continue to be lower than my percentages recommend in technology (software, hardware and media) and consumer goods. My computer scientist daughter has helped me identify some tech candidates, and Bianca and I are looking for consumer product companies we like.

I'm 5.28% over plan in foreign equities, but I'm still happy with the choices Bianca and I made there, so we're going to subtract the overage from the US equities allocation for now. If they reach 8% over, I'll have to make a sell decision.

With the portfolio review complete, my diversification system now tells me exactly what to do: find large cap growth stocks in technology and consumer goods for a total amount of $122,872 and buy $14,191 of commodities futures (DBC).

I expect several more plunges in the market over coming weeks, so -- as Bianca and I decide on stocks -- we will set our limit order prices low and wait patiently for them to trigger. Meanwhile our money sits patiently in safe cash.