A recent FOMC caused an immediate 4-and-some-odd-percent correction the value of my holdings.
A self-fulfilling prophesy, perhaps. If the market believes REITs and other higher-dividend equities are bond-equivalents, then it will reprice them according to what it believes is the risk-free interest rate, or will be soon. Funny, nothing actually happened, but apparently vague hints are all it takes to reprice real assets in this country.
It's not clear that the earning potential of any of my holdings has changed.
I looked at the trailing 12 month dividend payments to my IRAs; biggest 12 month interval in my history. At least the rising income piece seems to be intact. I can't completely look past the 4+% slide in account values from their peak, but this is the time for me to remember my principles and hold to the values I have adopted. If values drop another 20%, I still need to hold fast. I'm not aware of a better strategy than the one I've got, so there's little value in selling while prices are down. I've seen a few companies melt down. I know what that looks like. So far, nothing bad appears to be happening with any of my holdings, other than "headwinds" and a broad-based pull back in value.
I'm fully invested, as usual. That means no ready cash. The only way that is going to happen is turning off the DRIPs, or waiting for a cash infusion to the pension plan. That won't help the IRAs. I've watched some other investors sell a few companies that failed their screening criteria. I'm not convinced I have anything so broke it needs replacing. One guy I read simply says "never sell". Pretty easy advice. For now, I think I'll take it.
Saturday, March 14, 2015
Monday, March 2, 2015
Another perspective on relative investment performance
I spend a lot of time working for clarity on how to assess whether I'm doing ok with a given investment or with the entire portfolio of holdings that I have within my retirement portfolio.
A thought just came to me regarding how one might think about the situation conceptually.
First; one should ask; at what rate is inflation eroding the purchasing power of my wealth. Whatever my investments, they must make headway against inflation, or I am effectively in a savings account without a return on investment.
Second, is the company in which I am invested growing it's business or not? Did it produce more revenue this year than last year? Did it produce more profits this year than last year? Did it produce more than the rate of inflation?
Third: What about my position with that company? Did my position grow slower, the same or faster than the growth of the company? Is my investment in the company compounding or not?
Very simply, if the value of a position grows less than the rate of inflation, one is in a losing investment. If the portfolio value grows less than the rate of inflation, one is in a losing portfolio.
Since my focus is primarily on producing a rising stream of income on which I will eventually live, valuation is a secondary issue to cash flow. It is possible for a portfolio to produce increasing cash flow even as it's value is declining, stagnant or growing at a rate lower than inflation, but only for a while. Eventually, there must be rising earnings in order to support rising dividends. There should be growth in valuation as a consequence of those rising earnings.
So, this thought is about how one monitors a holding, or the entire portfolio.
Start with the overall cash value of the portfolio. Has it increased on a year to year basis? If new money is coming in, then that must be subtracted in order to see the investment performance.
Second, what about each holding? Has the position grown in value? If not, what about the income stream? by how much? less or more than inflation?
Finally, what about relative performance? If one's best efforts are not as good as a well constructed dividend producing ETF or mutual fund, then why expend the effort at managing one's own portfolio. Time is money, or even better; time is the one equity that cannot be purchased with money. Time expended should deliver significant value or it should be spent on something else than managing a portfolio.
So, how am I doing? Good question; let's look.
4/30/2013 12/31/2013 12/31/2014
Trad 797743 815164 912752
Roth 136897 143127 138412
Trad div 20895 23619 25612
(12mo est)
Roth div 6117 6215 5938
(12mo est)
What happened? In my roth account in 2013, I succumbed to some speculative temptations; lost a bunch of money in battery storage and biotech companies that did not have positive earnings or dividends. I actually sold some dividend-paying stock that I wasn't interested in and blew it on speculation. I decided I wouldn't do that again, so I sold out after the losses, reinvested what remained back into more conservative holdings.
I have a Schwab 401k account. It includes both Roth and traditional components, but it looks like one account. I can't break out the percentage of one from the other at the moment, with current reporting. That is an actively growing account, with pension and profit sharing contributions. It is a "smaller cap" DGI portfolio, but I'm rethinking that strategy at this point. I can hold small- and medium-cap companies in any of my accounts and it really doesn't matter in the long run. For the sake of clarity, it may be easier to segregate types of holdings in one account. I'll be thinking abut that in upcoming days...
A thought just came to me regarding how one might think about the situation conceptually.
First; one should ask; at what rate is inflation eroding the purchasing power of my wealth. Whatever my investments, they must make headway against inflation, or I am effectively in a savings account without a return on investment.
Second, is the company in which I am invested growing it's business or not? Did it produce more revenue this year than last year? Did it produce more profits this year than last year? Did it produce more than the rate of inflation?
Third: What about my position with that company? Did my position grow slower, the same or faster than the growth of the company? Is my investment in the company compounding or not?
Very simply, if the value of a position grows less than the rate of inflation, one is in a losing investment. If the portfolio value grows less than the rate of inflation, one is in a losing portfolio.
Since my focus is primarily on producing a rising stream of income on which I will eventually live, valuation is a secondary issue to cash flow. It is possible for a portfolio to produce increasing cash flow even as it's value is declining, stagnant or growing at a rate lower than inflation, but only for a while. Eventually, there must be rising earnings in order to support rising dividends. There should be growth in valuation as a consequence of those rising earnings.
So, this thought is about how one monitors a holding, or the entire portfolio.
Start with the overall cash value of the portfolio. Has it increased on a year to year basis? If new money is coming in, then that must be subtracted in order to see the investment performance.
Second, what about each holding? Has the position grown in value? If not, what about the income stream? by how much? less or more than inflation?
Finally, what about relative performance? If one's best efforts are not as good as a well constructed dividend producing ETF or mutual fund, then why expend the effort at managing one's own portfolio. Time is money, or even better; time is the one equity that cannot be purchased with money. Time expended should deliver significant value or it should be spent on something else than managing a portfolio.
So, how am I doing? Good question; let's look.
4/30/2013 12/31/2013 12/31/2014
Trad 797743 815164 912752
Roth 136897 143127 138412
Trad div 20895 23619 25612
(12mo est)
Roth div 6117 6215 5938
(12mo est)
What happened? In my roth account in 2013, I succumbed to some speculative temptations; lost a bunch of money in battery storage and biotech companies that did not have positive earnings or dividends. I actually sold some dividend-paying stock that I wasn't interested in and blew it on speculation. I decided I wouldn't do that again, so I sold out after the losses, reinvested what remained back into more conservative holdings.
I have a Schwab 401k account. It includes both Roth and traditional components, but it looks like one account. I can't break out the percentage of one from the other at the moment, with current reporting. That is an actively growing account, with pension and profit sharing contributions. It is a "smaller cap" DGI portfolio, but I'm rethinking that strategy at this point. I can hold small- and medium-cap companies in any of my accounts and it really doesn't matter in the long run. For the sake of clarity, it may be easier to segregate types of holdings in one account. I'll be thinking abut that in upcoming days...
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