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Wednesday, October 7, 2009

Hard Times Investing Update 10/07/2009

It has been a while since I did the last
Hard Times Investing Update; it was February 4, 2009 to be exact. On that date, as a patent joke, I predicted a bear market bottom of 675 as a closing low for the S&P-500 simply because all of the experts seemed to agree that we had already hit bottom. It turned out that the experts were wrong and down the markets went. On March 9, 2009, the S&P closed at 676 and has chugged and churned upwards since. My contrarian guess for a market low was nothing but dumb luck; I bring it up only to point out that professional stock market pundits are no better at guessing than we commoners are.

As a hedge, recently I took some profits from a few of the purchases that I made when the markets were ratcheting down into the bowels of Hades; my modest portfolio asset allocation is back to around 46% cash and 54% equities. At its worst point during this market crash, my portfolio value had dropped 25% from its high. Since then I haven’t done too poorly, the portfolio is now within only 3% of being back to its all time high whereas the S&P-500 needs to tack on around a 48% gain from its current level of 1057 to return to its pre-crash high of 1565.

Why was it that I didn’t bet the ranch and go to 100% equities when the S&P closed at 676? For the same reason that I was not 100% cash before the markets tanked; because I have been at this long enough to know that I am only guessing which direction markets are heading, the markets have humbled me many times over many years. My goals for the retirement portfolio are simply to preserve capital while striving for a realistic growth rate. If I don’t try to get rich I will (hopefully) avoid becoming poor. While I have not done badly in preserving capital, obviously I have not beaten the market; I have not yet achieved the growth that I had mapped out. There is still work for me to do and risks that I must take; I am hoping that my dumb luck holds. I expect there to be a substantial market drop soon but I don’t expect to see a return to 676 for the S&P-500 for the near future, barring an act of war or other calamity. So long as there is enough credit available for the major market players to avoid margin calls and the resulting forced liquidations, my wild-ass-guess is that we still have some market upside momentum. Right now, the pundits seem to be evenly split into three camps; “we are in a new multi-year bull market,” “we will ratchet sideways for years,” and “we will return to the pits of hell.” Once the majority of the experts agree on the markets direction, it will probably be best for me to go the other way.

DISCLAIMER: Nothing in this entry is financial advice.


James R. Rummel said...

"My goals for the retirement portfolio are simply to preserve capital while striving for a realistic growth rate.

So what is a realistic growth rate?

James A. Zachary Jr. said...

“So what is a realistic growth rate?”

Heh, that is the prize-winning question and I can only answer from the center of my own little universe.

For now, at my age, with my limited abilities and resources in an economic world gone mad, I believe that 5% annualized *over the rate of inflation* is still realistic and that is what I am shooting for. As I get older, I may need to back down even further on my risk tolerance and just try to stay even with inflation.