Vanguard - I am throwing in some towels

It has been fun developing the basket strategies and it has been good for our future retirement since we have had a long bull run, but it takes a lot of time. Today Kathy and I filled out three in-kind transfer forms to close the following baskets:

• Dividend
• eCommerce
• Long term holdings

I am please to report that each of them grew in value 20% or more, (eCommerce was up 35%). When these assets get to Vanguard our financial advisor there will liquidate them and place them in large ETFs or mutual funds.

Kathy and I have run through a number of financial calculators trying to to the retirement spending and will we outlive our money type of analysis. We have not arrived by any means, but in addition to the time it takes to manage my investments, I do not need to keep taking that level of risk.

If it sounds like I think I am smart, it is not so. We just happened to have some cash available right after the great recession and it would have been hard not to do well.

Why I have the premium LinkedIn, (LNKD)

Last month I upgraded to the premium LinkedIn. This was a fairly serious decision at five hundred something dollars. It is also something I thought I would never do, and the reasons are detailed in Part 2. Here is what I have learned since then. The interface problems were due to the browser I was using, Firefox. When I tried Safari, everything worked. Being able to actually use the product let me see what is possible.

I have done a number of test posts and on average get five times more hits than this blog. Within a month of focusing on the tool, I was able to grow my network larger than Twitter, Facebook or Google +.  Sometime in the next 30 days I am going to add to my position, wish I had done that last week :)

Part 2 This is what I thought on 3/2/15

LinkedIn is one of the Motley Fool forever stocks so I opened up a position. However, I am thinking about unwinding it. A number of things on LinkedIn just don't work at least using Firefox. This is the most aggravating case. I have no clue how many links/friends/follows or whatever I have but it is a lot, way past that 500 milestone. And they are not just Joe Anybody's they are primarily high performing members of the security community.

About once a week one of them will reach out to me from LinkedIn to my email. I click on the reply button type in a note and hit send or what every they call it and that spinning cog, spins and spins. Have even tried letting it run for 24 hours.

The same thing, (spinning and spinning), sometimes happens when I am searching for someone that is a high performing security person and they do not come up on the first screen. So I try putting in their country or their company.

The company I work for is buying some of their business services. I have wondered if I should ask for a subscription or account or whatever they call those. But what I really wonder is is it just me? I haven't heard anyone else complain. Does it only work with Explorer with accepting cookies, 3rd party cookies and such? Is it NoScript or Ghostery that is doing me in? Or it could be some weird karma, in my IT career there have been multiple times where I was the only one having the problem.

The bottom line: we should all be gun shy of investing in software companies where the software doesn't work. Now I just need to find out, does it or doesn't it.

Water as a megatrend

I hold PHO in basket Ck, but over the next few weeks want to really focus on a water portfolio. It is becoming a bigger and bigger issue.

6/14/15 set a limit for 45 PHO @25.50 - California just set extreme limits on agriculture.

6/12/15
From the Ck basket notebook: 3/5/15 The limit on PHO hit, 80@25.00 Last Close 24.70. This is a very long view play for me. Water may be the most precious resource on earth, you can't eat or drink diamonds or gold and you can't live without water. It might make sense to set another deep limit, need to ponder that over the weekend.

OK, now I understand what a flash crash means - LIQD

Update: 4/30/15. This post is mostly about LIQD in my trading notebook, but occasionally I will take a look at other large drops and surges. Twitter dropped roughly 25% because of an earnings post and trading was suspended at their request. I need to rethink all these powerful Wall Street computers that can cause so much havoc.

Update: 4/22/15 This post is about a very rapid drop of a single equity, miniscule in comparison to the real Flash Crash. Turns out that was the result of one man manipulating the market. From the DOJ post: "Navinder Singh Sarao, 36, of Hounslow, United Kingdom, was arrested today in the United Kingdom, and the United States is requesting his extradition."

Recently, I decided to open a position in Liquid Holdings group. This is discussed in detail in the Ts chapter of my trading notebook; look for the May 14 2014 entry.

Whenever possible I use limit orders. This is for two reasons to get a slightly better price if I get lucky and also because I am often making trades at night from Kauai and the market is long since closed. I set a limit for LIQD  for 300 shares limit 1.85 when it last closed at 2.30. I always use Good Till Cancel (GTC), since I have a fire and forget mentality for small purchases.

Well a funny thing happened on the way to Wall Street and to be honest I do not totally understand it, but LIQD released a bunch of new shares at 1.25. Now we are only talking $600.00 or so, this was not a big position for me like say, IBM. But still, when I read the press release I expected to find myself down 40% or so.

Enter the LIQD flash crash. In the picture below, courtesy of Google finance, you see the vertical drop. Nobody died and left me smart, but when I see this pattern, I assume it is all those supercomputers and high speed trading on Wall Street.

There is an ancient adage that God protects fools and small babies. So, I am giving thanks. Here is what I think must have happened. In the screen shot below, the bottom LIQD is the original limit order for 300 shares @ $1.85. As we see, it settled at $1.30. What must have happened is as the drop started, it hit 1.85 which triggered a market order for 300 LIQD and by the time that went through the price point was 1.30.

Now we all know the famous saying, I can quit anytime I want to, but I don't want to. While the price was showing 1.25 I put the top order in for 500 more shares and ended up getting a price of 1.26. Now little of me with $1037.90 in the game after I include the commissions isn't all that concerned about buying a market order at 1.25 and having it end up at 1.26, but if I am Warren Buffet adding to my Wal-Mart position, I bet it is a big deal.

So, I have a lot to learn from this experience, but wrote it down in my trading notebook so I can ponder it.

1/8/15 They have dropped to .30, but went up 13% today. I think that counts as volatile. Oh well, it is a small stake and hopefully I will learn something.

4/22/15 Be interesting to see if they can turnaround. Here is what they are trying. Currently trading at .25.

My brain is my enemy (updated 2/9/15 original 10/3/12)

The chronicle of higher education ran a fascinating article on the impact of our brain chemistry and function on our investing decisions. I have long feared the impact of emotion when it comes to trading. This work appears to support the research in Thinking Fast and Slow by Daniel Kahneman, which outside of the Bible is the most important book I have read in my life. So what can we do?

We will never be S'chn T'gai Spock, the Star Trek commander that always used logic, never emotion. A suggestion in Kahneman's book is to establish rubrics or decision trees. So this is one thing I try to do in investing. I have learned that nearly all of the online brokerages treat you the same if you have $2,000 invested or $20,000 invested, the trade fee is usually the same, access to research usually the same and so forth. So, we can put our investment money in several different online brokerages trying to take advantage of their various strengths.

 So, we introduce the notion of baskets. A part of our total investment and it has some ground rules. And every investment decision has to be part of the ground rules. Let's talk about some simple examples:

All small caps, or all mid cap, or all large or mega cap. The advantage to doing this is from time to time in bear/bull cycles one or another size does better. By having them all together you can compare apples to appls.

All emerging, or all international, or or or

All &lt 5% debt to assets Easy to understand, but fairly primitive, but as we grow our experience and our portfolios, we can combine rules:

All pacific, except no Japan, mid-cap

All US, &lt 5% debt to assets, top 3 performers in the basket get $500 added every trading cycle Why is this important? People that are new to investing will commonly skip the idea of having a significant foundation of ETFs that are index based and jump straight to the idea of finding the "hot stock" ( or ETF). And sometimes Mr. Market and their intuition will reward them. Sometimes they have legal insider knowledge as customers of the product. But that approach will eventually and utterly fail as they purchase individual stocks of things they read about in Money Magazine or whatever. Instead, we know that our brains, at least the thinking fast part, are well designed to take us into bankruptcy.

I have been using this basket/ground rule strategy for several years and it has worked out for me to help protect me from impulse buys. It also helps me mark the point at which a strategy has to change or simply is not working out. 

As an example, I have a paid service, (expires in June 2015) called the Motley Fool Million Dollar Portfolio (MDP). The ground rule was very simple, if they said buy and make it a 4% allocation in the basket, that is exactly what I would do. Same for sell directions. Then they had a staff turnover, Ron Gross has left, a new team with a new philosophy has come in. There was minimal explanation of what was going on, but a lot of sell and partial sell orders. The new philosophy is to look at other Motley Fools paid services and recommend the best picks. The problem with this is I am already overweight with respect to the Motley Fool. I have their mutual funds, when I look up a stock on Google Finance, there is almost always a pointer to at least one Motley Fool article. Nothing against the Fool, MDP is my best performing basket even though the service launched right as the great recession started. My first inclination was to say the heck with this and unsubscribe. And that is a fantastic illustration of my brain reacting to information. From now, until my subscription expires I am going to run a fake portfolio with their recommendations, but I am going to relax the ground rule of this basket. In June I have several decisions to make and now is the time to lay the groundwork.

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Quick look, Ralph Lauren, MSFT

2/4/15 Ralph Lauren got whacked today, earnings. The crazy thing is that it is largely currency related. Here is one guy's opinion on RL. Going to try to open a position in basket Ts:
RL 10 Limit 140 Current value 140.99
3/3/15 136.03, hmm, well I still have $1000 in cash sitting on the sidelines
RL 5 Limit 134.00 Current 135.93

2/4/15 Microsoft is currently trading at 41.97. I continue to struggle with their long term prospects. The news that they are going to support Raspberry PI with Windows 10 is huge. The Internet of Things is a huge Macro trend. You can buy wireless connected Crockpots for Pete's sake. If we get another dip, I think I will add to that position. Here is one person's bullish opinion on MSFT. Who knows?

Looking back at some decisions made a few years ago:
3/16/13 Microsoft dropped 1.15% today, so I added 25 shares to my position in Es. Last price was 28.00. Also added 20 shares of EBAY in basket Sk, last price was 53.68.

Updates from March 2013:
2/4/15 Ebay has also struggled a bit since March of 2013, current price is 53.83. The big news is that they are going to spin off PayPal. Really worth watching.

316/13 Sold 400 SUP last price 19.05, this was a nice 18% profit.
2/4/15 Superior Industries (aluminum wheels) has struggled, current price is 19.60.

FIk Value Strategy

Thesis: A value strategy should be part of anyone's retirement oriented portfolio. I am finally ready to take this on, (1/30/15). The rules that comprise the strategy of this basket, (Version 1.0) are:

• Do not limit purchases/sales to the advice from Motley Fool Deep Value, but pay close attention to them. Ron Gross made Kathy and I some serious dinero with MDP and that opened right as the great recession hit.
• Seek out as much value advice as possible, run screens, take a peek at top holdings of value oriented ETFs and mutual funds. 
• After initial build out of 10 equities no equity should comprise more than 10% of the basket, 
• Avoid equities with dividend yield > 4%, that might not be sustainable
• Factor debt and P/E into decisions, but the most important factor is underpriced, or unfollowed stocks
• Use limit orders to buy and trailing stops to sell
• This is not a dividend reinvestment play, use the cash to buy more equities
• After initial buildout, up to 25% cash on the sidelines is fine, we are looking for buying opportunities. 
• If there is enough cash on the sidelines, consider aggressive limits (10% lower than last close); bluebirds are rare, but they do happen.

1/30/15 First pick: Horsehead Resources:
ZINC 185 Limit 13.35 LC 13.44 NOTE: Beta is 2.19 consider a more aggressive limit, we might be in for some chop.

Round one of a watch list, I am using the top 5 holdings of SCHV (which I hold).

XOM EXXON MOBIL CORP               3.7%
MSFT MICROSOFT CORP                    3.4%
JNJ         JOHNSON & JOHNSON             2.8%
WFC       WELLS FARGO & CO                2.5%
GE         GENERAL ELECTRIC CO         2.4%

( potential bonus #6) PG           PROCTER & GAMBLE CO        2.3%

Let's do the good ol red/green analysis, keeping in mind that past performance is not indicative of future results and this is only a relative measure constrained to this small, (diversified by sector), group of equities.
                       30       90       180     1     5      10
XOM                                                      5        2
MSFT                                              3     4        4
JNJ                                                  2     2        3
WFC                                               1      1        1
GE                    1                                    3

WOW! I am truly amazed. The blanks are where the companies are negative for that time period, would not have expected this in a bull market that favors the big guys. I think the path of prudence is to proceed carefully. I have a position with each of the equities, but opened those positions years ago. Where to start looking for purchase #2 in a value basket?

Historically Wells Fargo has done well. Let's look at a few numbers starting with debt ratios:
D2Equity 134.20 Interesting, guessing this is leverage? Pot calling the kettle black?
D2Assets   14.67 (In terms of assets they are the 4th largest bank in the US)
P/E 12.67
Beta 1.09
Last close 51.92
They just had a banging quarter, so let's drill down on them solo as opposed to comparing them to other sectors. They are up 14% for the year, but down a bit recently. Let's try a limit order and see if that Beta and some market jitter will help us open up a reasonable position:
WFC 60 Limit 51.00 Last close 51.92

This is far from an aggressive bid, they dropped $0.81 on 1/30/15, now let's see if we can set something more aggressive up.
WFC 80 Limit 47.00 Last close 51.92