February Update and Portfolio Changes

Wow, another crazy month.  I sound like a broken record because it seems like every month is crazy and full of scary, exclusive, one time events that supposedly move markets.  But is it really scary or any different than it has been for 100 years, or is it the ad space selling, controversy creating, content starving, networks that are trying to suck in viewers and visitors in an on going effort to obtain traffic and ad revenue?  I’ll go with the latter…things aren’t any scarier now than they have been for 100 years.  Markets have cycles, they go up (usually up too much 2000 and 2007) and they go down (usually down too far 2008) and it is our job to be invested in the trends that are working and out of the ones that aren’t  That’s where our method of trend following comes in, remember we do what the sixth grade math tells us to do and nothing more.  Let the “experts” drive themselves crazy while getting it wrong month after month…no one can accurately predict and out perform the markets month after month year after year.  A few weeks ago I saw a prominent network source predicting the Fed’s next move to be announced the next day…well the next day came and he was dead wrong.  A day later he was on again predicting home prices.  These people are on TV and websites day after day making predictions like they are fact when most of the time they are wrong.  No one keeps track of that.  But let one of them be right and they re-post it day after day on their Facebook and Twitter accounts and invite you to pay 29.95 a month for their super exclusive alerts and stock picks website.  Don’t fall for that.  Back to the portfolio.

There are NO changes again to the portfolio this month even though 2 out of the 3 investments we down on the month and the portfolio was also down.  Here are the results:

02/28/15 Shares Change Month
VNQ 393 83.37 32764.41 -3.67%
MTUM 492 71.26 35059.92 5.43%
VGLT 404 79.7 32198.80 -5.68% Paid .166 per share 2/2 added to cash
Cash 74.88
100098.01 -1.30% -1316.24

The portfolio was down for the month 1.3% and -$1316.24 and for the year is now up a whopping $98.01.

Whats interesting to note is that even though VGLT and VNQ had down months, they are still in the top 3 of our 13 choices.  One more down month and this might not be the case. Now if I was relying on my own genius to make investing decisions I would most likely be selling VGLT and VNQ and piling into stocks like everyone else.  But that would go against the sixth grade math, become a prediction, and in the words of Ray Dalio, one of the best investors I have ever heard of, “He who lives by the crystal ball will eat shattered glass.”

That reminds me of something else Ray Dalio said.  Keep in mind, Ray Dalio runs a 160 BILLION dollar portfolio and recently said 99% of the time he agrees with his quantitative strategy, the 1% of the time when he disagrees with the  machine (math) he realizes in retrospect that  the machine was right 66% of the time.  So arguably one of the best investors in the world is only smarter than the quantitative approach once out of everything 300 decisions.

That being said, I will stick with the math and no matter how scary things get in March I will stick with VNQ, VGLT, and MTUM, even though MTUM scares me and VNQ and VGLT had an awful month in February.  If Ray Dalio only out smarts the machine 1 out of 300 times, what chance do I have?

For those of you that asked, here is a list of our 13 choices ranked highest to lowest taken from http://www.investingforaliving.us.

Symbol Description 1mo 3mo 6mo 12mo Avg
VNQ Vanguard REIT Index ETF -3.67% 4.88% 10.51% 22.51% 8.56%
MTUM iShares MSCI USA Momentum Factor 5.43% 3.86% 9.50% 15.12% 8.48%
VGLT Vanguard Long-Term Govt Bd Idx ETF -5.49% 5.86% 9.21% 20.47% 7.51%
VTV Vanguard Value ETF 5.31% 1.35% 4.37% 14.15% 6.30%
VBR Vanguard Small Cap Value ETF 5.66% 4.01% 4.15% 10.70% 6.13%
VBK Vanguard Small Cap Growth ETF 5.97% 5.78% 5.64% 5.09% 5.62%
VCIT Vanguard Interm-Tm Corp Bd Idx ETF -0.99% 1.74% 2.28% 6.31% 2.33%
VWO Vanguard FTSE Emerging Markets ETF 4.66% -0.45% -6.55% 10.44% 2.02%
VEA Vanguard FTSE Developed Markets ETF 6.16% 2.90% -1.72% 0.10% 1.86%
VGIT Vanguard Interm-Tm Govt Bd Idx ETF -1.52% 0.84% 2.01% 3.45% 1.20%
IAU iShares Gold Trust -5.79% 3.72% -6.02% -8.87% -4.24%
IGOV iShares International Treasury Bond -0.82% -4.49% -9.75% -8.30% -5.84%
GSG iShares S&P GSCI CommodityTrust 5.94% -16.59% -33.75% -36.74% -20.28%

Trust the machine!