Eileen's picks

Competition Compulsion

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I'd like to propose a new Topic of the Week: How has participating in this competition changed your investing approach/strategy for good or ill? Has it changed your real life approach too or only what you do with your competition portfolio?

As for me, it's been a negative in terms of my competition portfolio, and a positive in terms of the real investments I'm responsible for.

Here's why: I was one of the people who said, "Watch out when the banks report." And I also said I was going to keep all the high flying foreign stock gains I'd harvested safely stowed in cash until the bank-induced crash happened. Was I correct ???? Yes !!!! Did I do what I said I was going to do? NO, I did not. Why? Competition fever. As I watched my ranking slip from 70 to 90 to 110 to 157, I couldn't stand it. Even though I knew I shouldn't and had written that I wouldn't, I did. I bought. And the predictable happened. I lost a lot of money.

Ironically, I'm clearly not the only one who bought when selling would have been a better move or bought the wrong thing at the wrong time. During the worst of the bank-induced crashes I was away, busy with real business and family matters. When I returned last week I found to my amazement that -- in spite of huge losses -- I'd risen to 93 in the rankings. Nevertheless, every single stock I purchased when I shouldn't have has performed worse than the stocks I already owned and should have limited myself to. Hardly inspiring to write about them, though I will at some point because they still seem like good choices purchased at the wrong time.

In the real family trust I'm responsible for, I stuck with caution, allowing the "unnatural" October run up in the market to lift the equity holdings to planned levels, but not investing any cash. What a surprise! The family trust, while down, has faired much better through these down times than my SLO portfolio. Yet when the time comes to buy in the family trust, what I've learned from all of you will help me make better and more profitable decisions on what to buy.

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Am I being too cynical?

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Is it possible that fund managers - who control more dollars by far than individual investors - are going to allow the year to end with low performance numbers? That they'll risk investors fleeing their funds for higher performance elsewhere? That they will not take whatever action they can to assure their bonuses are as large as possible?

I don't think so, as Bianca says.

So I did my "end of the month" portfolio analysis and rebalancing (which I do "religiously" per my diversification system) earlier this week, to be ready to take advantage of a Santa Claus rally. I'm just cynical enough to believe that the Santa Claus rally is a tradition that's too profitable to disappear.

Here's how my SLO portfolio stands at the moment in relation to my plan:

We're $18,886 low in US equities, $38,292 low in foreign equities (having dumped my ill-advised purchase of LDK), $79,829 too high in cash and cash equivalents, $43,049 too low in real estate, and $2,602 too low in commodities (having sold the system-prescribed $10,000 of IGE when oil was flirting with $100 a barrel).

Since real estate is down the most (in my portfolio and the market), I started with making a decision on that. My system calls for real estate to be equally divided between domestic and foreign. My earlier decision to purchase SL Green Realty Group (SLG) was an OK (but not stellar) one made at the wrong time. How quickly it plummeted prevented me from investing in foreign real estate, but now is the time. So I'm going to put $43,645 in SPDR DJ Wilshire International Real Estate (RWX).

This decision presents a "problem" because it pushes portfolio investment in large cap way out of proportion. That means selling all of the GE shares I bought, also at the wrong time, but much less catastrophically. The reasons I bought the GE were sound, but it's a core holding and the portfolio is also seriously under plan in growth for going into "rally" season. So the small loss would be useful at tax time. Out goes all but $19,000 of the GE.

Next, in the foreign assets category, I decided to buy Shanda Interactive Entertainment Ltd. (SNDA) because I found Krish Rathi's most recent post highly compelling and because I'm not a stock picker and he clearly is and has done the kind of research stock picking requires and I have neither the time nor inclination to do. That purchase leaves the portfolio about $2,500 under plan in foreign, but that's close enough.

That leaves me with $92,331 for US equity to put into mid cap growth and $25,800 to small cap growth.

Bianca and I are on the hunt for stocks that meet our standards, and would love to get your recommendations.

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