March Portfolio Updates and April Allocations

Well, another month down and the portfolio just tread water in March. It did outperform the S&P and Dow however. But never mind that, it doesn’t matter.  As usual there were 744 hours of scary news shows and thousands of headlines, and after all that the bottom line is the market went nowhere.  The leaders remained the leaders and the laggards remained the laggards.  This isn’t my opinion, the 6th grade math revealed it to me.

Here is the final chart for March 2015:

03/31/15 Shares Change Month $ Change Month All Time
VNQ 393 84.31 33133.83 1.13% .51 paid 201.22 added 3/31
MTUM 492 70.3 34587.60 -1.35% .21 paid – 104.97 added 3/31
VGLT 404 80.32 32449.28 0.78% Paid .172 per share 3/2 added to cash
Cash 450.56
100621.27 0.52% ++523.26 ++621.27

So the portfolio is positive by $523.26 for the month and $621.27 since we started.  All three holdings paid dividends this month.

As a reminder, essentially this method relies on math to tell us what three asset classes out of the 13 discussed here ARE actually in the strongest up trend.  No opinions, no predictions, just 6th grade math.  There haven’t been any changes to the portfolio in a while which means our top three, MTUM, VNQ, and VGLT have all been in relatively strong up-trends for some time.  People have been trying to pick a bottom in gold and commodities for 3 years and have been wrong month after month after month.  I have to admit I never thought we’d see $42 barrels of oil again in my lifetime after it crashed in 2008-2009.  I also thought with all the rampant monetary easing and low interest rates our un-elected central bankers have done we’d have massive inflation by now.   But that’s why I don’t use thoughts or hunches to invest.  You know what they say about picking bottoms…only monkeys do it!

See you next month.


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

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!

January 2015 Portfolio Update

Its been an interesting month!  All kinds of news from various central banks all over the world.  100’s of companies reporting earnings and projecting what their sales and profits will be in the coming quarters.  Oil down, gold up, whats an investor supposed to do?  Ha, its easy.  Remember, a 6th grader can do this.  First lets review what we did in January:

VNQ 201 86.55 17396.55 4.66%
MTUM 248 67.59 16762.32 0.78%
VGLT 209 84.5 17660.50 6.08%
VTV 200 81.03 16206.00 -2.33%
VBR 160 102.28 16364.80 -1.35%
VBK 134 124.79 16721.86 0.66%
Cash 302.22
101414.25 1.41% 1414.25

The S&P 500 was down 1.27% since we entered the market and our portfolio was up 1.41%, a very respectable out performance. A $1414.25 profit for the month.

OK, what do we do now?  Well, I have done some additional research and have decided that instead of investing in the Top 6 of our 13 investment choices, we will now be investing in the Top 3.  Although this hasn’t been the case recently, over the past 40 years, investing in the Top 3 has returned a bit more than holding the Top 6.  The numbers don’t lie.  I thought going with the Top 6 might give me a little more protection and diversity but I cant deny the numbers.

I will post the details of the 13 investment choices next week but it looks like the top 3 have not changed so all we are doing here is selling off the 4-6 ranked investments from last month and reinvesting those proceeds evenly into the top 3.

So, that being said, our portfolio for FEBRUARY now looks like this:

02/01/15 Shares Price 2/1/2015 Change Month
VNQ 393 86.55 34014.15 0.00%
MTUM 492 67.59 33254.28 0.00%
VGLT 404 84.5 34138.00 0.00%
Cash 7.82
101414.25 0.00% 0.00

But what if the market crashes?  What if it doesn’t?  You see, with a portfolio built on rules, not predictions, you essentially remove guesswork and emotions from the multitude of variables that go into investing.  But what IF the market crashes…well, sometime this month I will review information from other blogs I read like and look at just what worst case scenario has been for a portfolio like this.

See, a six year old can apply these rules and techniques and make as much return (or more) than most money mangers.

Enjoy your month!

The Best Portfolios are Consistent and Boring

Another lesson I’ve learned the hard way has to do with volatility and its inherent risk.  When I stretched out for increased returns I always got more volatility and not always the extra returns.  Through this process I learned that although better returns are certainly possible the fact is it’s the consistency of a decent return that builds wealth over time.  Big returns followed by losses typically will not out perform small consistent gains.  Check out this eye opening set of data:

Return 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%
Start 100000 107000 114490 122504.3 131079.6 140255.2 150073 160578.1
Return 15% -5% 15% -5% 15% -5% 15%
Start 100000 115000 109250 125637.5 119355.6 137259 130396 149955.4

First off, I love applying statistics to my investing strategies that are generated by math a 6th grader can understand  It makes what I am doing more understandable and quite frankly, fun.  I enjoy listening to “market pundits” pounding the table all day advocating this investment or that investment with no accountability to its results.  Two months later, the guys that were “right” come back on the show and pat themselves on the back…the rest off them come back on the show but never bring up the fact that they have been terribly wrong the last 5 times they made on air recommendations.  Anyway, back to that chart above…quite simply, 7% year after year is far better than a few good years with a few slightly bad years mixed in.  Don’t even think about having a really bad year….one 50% down year requires a 100% gain to break even…even a 25% loss requires a corresponding 33.3% gain to break even.  Last I checked, we don’t invest to break even!

On a side note, did you ever have a friend go to Vegas and gamble and when he came back said, “I broke even.”  That statement means he lost! No one in the history of Las Vegas went there and broke even…its statistically impossible!

In short, 7 years with 7% gains in a row is much better than 4 out of 7 years with 15% gains and the other 3 down 5%.  As you can see above, the slow steady approach left us with 160k after 7 years and the volatile approach with higher returns (sometimes) left us with only 150k.

I like a little action as much as anyone but I have learned action and excitement with investments is a bad idea.  So if you need some action, do what I do, bet on golf and invest in the market.

How did I pick those 6 investments for January 2015?

I love market days like this when stocks are down 1% plus but 2-3 of my ETFs are positive on the day.  I also love knowing I don’t have to figure out or wonder what to do next because I already know what I am going to do.  On 1/31/2015 I will work my 6th grade math and adjust positions accordingly.

In the interest of getting up to speed on this “6th Grade Portfolio” I want to discuss how I came to recommending these six ETFs for my January 2015 investments mentioned in the previous post.  There are a few places online like here and here that I learned from and used to get a feel for this investing style.  I use the GTAA strategy they discuss as the basis for my strategy with a few of my own rules thrown in.  I have learned over time that one must eventually create their own investing style that suits their own comfort levels and risk tolerances.

We start every month with 13 different ETFs to choose from all representing different asset classes.  We choose 6 of the 13 each month to achieve diversification.  If you need to learn what an ETF is go here:  For a list of those ETFs please read my previous post.

Then using any charting service like I calculate each ETFs 1 month, 3 month, 6 month, and 12 month returns.  Average those together and that’s where I get the “Average Returns” column in the previous post.  Order them from highest average to lowest average return and voila you have the top 6 ETFs to invest in for the month.  Provided the ETF in that top 6 is above its 200 day moving average (also obtained by looking at the stock chart) you buy 1/6 of your portfolio in each.  Sometimes those top 6 will be the same top 6 as the previous month.  In that case (as was this month compared to December) you do nothing, just continue hold the ones you already had.  That’s the goal; to get into an ETF when it starts a reliable upward trend and as long as it stays in that trend it will stay in the top 6 and thus stay in the portfolio.  You never have to make a prediction about where you think its going to go as the 6th grade math will tell you if you need to buy, sell, or hold.  So the next time you hear someone predicting where the market will go you rest easy knowing that if it goes down you will get out and if it continues up you will stay in.

In summary, to execute this strategy you need to be able to read a chart, figure out averages and percentages.  Like I said, so simple a 6th grader could do it!

Here is an example of a chart that I use.  Its of the VGLT Vanguard Long Term Government Bond ETF and one of the best performers in the last three months.


I am just writing here for fun so if you have any questions or I missed something please feel free to point it out or ask.  No ego here.  In my next post I will discuss what to do when the strategy recommends a new purchase.  I dont just jump in with both feet and buy, I wait until I get a signal (again obtained by reading the chart) before buying.  This is one of my wrinkles on the basic strategy.  This keeps me from over paying for an etf that is moving up quickly.  I will also touch on risk and returns on a later post.  Its important to know what to expect in terms of returns and its even more important to know what risk you are taking to obtain those returns.  There’s no free lunch.

Necessary Skills to Master Before Investing.

Since this is my first post to this blog I feel compelled to say that I don’t particularly enjoy writing and that I am doing this more or less to have a neat public place to document my investments, ramble about random thoughts on any topic, and perhaps answer any questions anyone may have.  I may not enjoy writing, but I do enjoy debate, poking fun at conventional wisdom (ignorance), and good conversation.  So please feel free to comment, disagree or whatever!

As a non-professional investor I have had many successes and many failures (I prefer to call them “Learning experiences” haha) and from what I have seen nobody is worth the huge fees that some of these so called “advisors” charge. Even if you are not inclined to do the work (6th grade math) I discuss below, you still don’t need an advisor.  There are numerous online services that allow you to systematically save for your retirement in a low risk low volatility way that I would be happy to recommend.  Most advisors are in the client count building and assets under management building business, not investing or stock market out performance business.  Thats why they constantly ask you for referrals.    Why send your money to an “advisor” that is just going to in turn send your money to the same funds you can invest in yourself.   Its like paying someone 2% of your pay check to take your check and deposit it in your bank account for you.  Its all a big scam they use to confuse and scare people into thinking they are too stupid or uninformed to invest their own money.  One last thought for now, what I am describing below isn’t predictive at all, its reactive to what “IS” happening, not what I think is going to happen or not what I think should happen.  Basically own funds when they are going up and when they stop, don’t own them.  Simple right?  Thats why I say a sixth grader can do it.

I believe that a 6th grader can produce investment returns just as well as most money managers.  They can do this just by applying a few techniques and rules any 10 or 11 year old can understand.  I am not talking about outperforming Hedge Fund gurus like Ray Dalio with risk capital, derivatives, and advanced option trading,  I am talking about long term, relatively low risk, low volatility investing and saving that most of us should be doing.  There are a few other websites that employ this type of strategy I just have added a few of my own rules to it.  Here are the skills needed to determine the investments I would make or stay in on January 1st.

1. Chart reading

2. Division and figuring out averages

3. Basic Microsoft Excel use

Keep in mind all 6 of these investment recommendations have not changed since October 2014 and have returned 5.66% thru 12/31/2014, but for the purposes of this blog we will start where December left off and start with a $100,000 portfolio.  We will also not factor in costs of the trades.  There are numerous discount brokerages out there that change a mere $6 per trade as opposed to broker assisted trades that can run $50-$100.  (Again, if you go online to a discount broker and make a trade you pay $6, if you call your broker and ask them to make the trade for you, they charge $50-$100, don’t do that! :))  We re-evaluate monthly so at the end of January we will revisit these recommendations.  This will also give me some time to discuss the 6th grade math necessary to come to these conclusions.  Here’s what should be invested in right now and I will use their 1/5/2015 closing prices to establish our starting point.  Buy the first six in equal amounts, so if you have 100k, its 16666.66 of each.

Symbol Description Rank Avg Returns Position Closing Price 1/5/2015 Amount Invested Monthly Return Value 1/31/2015
VNQ Vanguard REIT Index ETF 1 14.33% Invested 82.7 16666.66 0% 16666.66
MTUM iShares MSCI USA Momentum Factor 2 11.80% Invested 67.07 16666.66 0% 16666.66
VGLT Vanguard Long-Term Govt Bd Idx ETF 3 6.84% Invested 79.66 16666.66 0% 16666.66
VTV Vanguard Value ETF 4 5.95% Invested 82.96 16666.66 0% 16666.66
VBR Vanguard Small Cap Value ETF 5 5.58% Invested 103.68 16666.66 0% 16666.66
VBK Vanguard Small Cap Growth ETF 6 2.57% Invested 123.97 16666.66 0% 16666.66
VCIT Vanguard Interm-Tm Corp Bd Idx ETF 7 2.19% Not Invested  TOTAL $$ 99999.96 99999.96
VGIT Vanguard Interm-Tm Govt Bd Idx ETF 8 1.83% Not Invested
IGOV iShares International Treasury Bond 9 -3.20% Not Invested PORTFOLIO RETURN JANUARY 0.00%
IAU iShares Gold Trust 10 -3.53% Not Invested PORTFOLIO TOTAL RETURN SINCE INCEPTION 0.00%
VWO Vanguard FTSE Emerging Markets ETF 11 -3.55% Not Invested
VEA Vanguard FTSE Developed Markets ETF 12 -5.96% Not Invested
GSG iShares S&P GSCI Commodity-Indexed Trust 13 -27.54% Not Invested

A couple final thoughts.  Remember this account is set up with funds slated for systematic retirement and savings generation and accumulation.  I would be happy with 7%-8% annual returns with very low volatility in this portfolio.  In a perfect world one would have VERY minimal debt, zero credit card debt, be living BELOW their means, and have minimum 2 months expenses in cash which should also be about 7% of your annual income.  That means a person making $75,000 per year would have $10,500 in cash in the bank and be spending about $5250 per month total.  This should leave about 16% of your annual income for savings.  Do that for 5 years and you would have a $100,000 portfolio. Lastly, I actually “think” this portfolio is too heavy on stocks considering where the market has gone over the last five years, BUT the whole point of this technique is not to “think” or “predict”, just follow the 6th grade level rules.  There’s probably more but I think I’ve written enough for one day.  In my next post I will discuss how we applied that 6th grade math to arrive at our investment choices.