Wednesday, October 27, 2010

A Simple Thing

I replaced a light bulb recently and smiled because of my wife. Shortly after getting married, I needed to replace a bulb and did what I've done for years - I reached up, took the old bulb out and put the new bulb in. I thought nothing of it. My new wife stood with her mouth agape in amazement. She had never seen anyone "just reach up" and change a light bulb. She quickly got on the telephone and called her family and little friends to tell them what she had seen. I smiled and laughed. Later we went by my folks home and the story was told. I've known my family my whole life. They were not impressed. My wife intoned "he just reached up". Silence. They were just not impressed by something I'd been doing for 20 years.

Eleven years into marriage, I still just reach up - and smile as I recall the first time my wife saw me change a light bulb. Eleven years into the marriage, it takes a bit more to impress my wife - and I still try to impress her.

Monday, October 18, 2010

Finding a cash position for my portfolio

How many of you have a budget?

When I moved out on my own, I lived check to check and most assets were donations from family.  Every check was earmarked for the long list of items needed to live independently.  I shopped for furniture
by asking friends and family: the parent's old couch; a table from one  friend and a chair from another.  None of it matched, but the price was right - free.  Slowly over time, I built up savings and assets.
Now, when I shop for furniture, I start at a store.  Now, I save money from each check.

This growth and maturity and planning is the same for a portfolio.

I started investing in stocks about 12 years ago.  My first purchase, after careful research, was Adobe (ADBE).  I used a free trade at a discount broker and spent $100.00 to buy two shares.  Those two shares cost $95.00.

I used the four guiding principles (as I understood them) of BetterInvesting:
1.      Invest a set amount regularly
2.      Reinvest earnings dividends and profits - be fully invested.
3.      Invest in quality growth stocks and equity mutual funds
4.      Diversify your investments

Cash is not mentioned.  My understanding was I needed to be fully invested at all times.  As I ran the numbers, investing $100 a month into the market would result in lots of transaction fees which would
eat into my returns.  I decided to set a threshold of $500 to keep the  fees lower.  Waiting five months to make a purchase seemed really hard.  Stocks were going up and I was not fully invested in the
market.  I was in a hurry to build a portfolio.  I thought cash on the sidelines was a wasted opportunity.  I thought cash on the sidelines meant not being fully invested.

Running a home takes financial planning and a budget.  Everyone get this concept.  Using a budget allows you to take advantage of sales on the things you need and want.  Using a budget allows you to plan for future spending.  The same holds true for a portfolio.

There was a great series of articles on (subscription required, free 30 day trial).  An article from June 2010 mentioned the amount of cash being a floating function of the expected returns of the portfolio.  Whenthe expected returns are high (stocks are on sale), cash should be low; when expected returns are low (stocks are high in value), cash should be high.

It was an a-ha moment.  Of course!  It only makes sense that the  amount of cash varies with expectations of the portfolio.  And a formula makes it even better.  The amount of cash ranges from 0%
(everything is on sale) to 25% (nothing is on sale).

As of 10/17, the median projected annual return (PAR) for all stocks followed by MANIFEST is 8.5%.  This results in an ideal cash position of 0.25 (1.25 X 0.085) = 0.14375 or 14.375%.  My current cash position is 10%.  This does not mean I need to sell stock to bring cash up to 14%  - but it does mean I am keeping my monthly deposits in cash.

Friday, October 8, 2010

seven minutes of terror

The big game (Michigan vs. Michigan State) happens tomorrow.  All around me people are voicing their opinion on who will win and why.  I am ambivalent.  My wife is grateful that she is not a sports widow.

Despite my lack of interest in sports, I remain somewhat conversant about sports.  The reason is work.  With the number people talking about sports, I pick up a few thing by osmosis.  Additionally, I used to force myself to know about sports.  It was for my job.

Years ago, I worked at a small adult contemporary radio station in Port Huron.  It was my first job in radio.  It was thrilling.  The first day on the job, my boss showed me the way thing worked.  He was impressed with how I did the math in my head.  The station ID played automatically at the top of the hour and you never want the ID to play during the middle of a song.  Additionally, there was the ABC news feed that happened right after the station ID.  I added up the minutes and seconds in my head and planned the last 20 minutes of the hour.  My boss felt confident in my abilities and decided to leave.  As he was leaving, he mentioned "oh, start gathering stories from the wire for the 6:00pm sports report".  I stammered "Sports report?"  He said "Yeah, we do seven minutes of sports - mostly highlights.  If you want to write it,  go ahead.  Or just grab it off the wire"

I smiled and said not a problem.  Inside I was in a state of panic.  I grabbed a few stories from the wire and scanned stories for unfamiliar (hard to pronounce) names.  I was safe - this time.

On my way home from the station I picked up a copy of Sports Illustrated and filled out the card for a subscription.  I also started devouring the sports section in the two daily papers.  I started listening to sports talk radio.  I wanted to make sure I would not embarrass myself by mispronouncing a name or not understanding how the information was conveyed.  Over the next few weeks, I increased my sports knowledge, but I was still anxious.

During this time, The Red Wings were winning - a lot.  The roster terrified me.  I practiced the names over and over.  I was determined to not be embarrassed.  All my hard work paid off - until the day I opened the mic and announced "Wed Wing Win".  All the hard work done to avoid embarrassment was undone.  The phone lines lit up with amused callers.  The pressure I placed on myself also disappeared that day.  Without the fear of embarrassment and pressure, the amount of fun increased exponentially.

Friday, October 1, 2010

Behold the power of karaoke

Our local library held a family function recently - and the family went. The girls (ages 5 and 8) were eager to go – they love reading. And events like this usually feature junk food. As we entered, I heard a child singing and music. They had kid karaoke. This version features songs familiar to kids – Disney stuff and some pop music. I enjoy karaoke. I asked the oldest daughter if she wanted to sing. A quick, flat “no” was the response. The youngest quickly piped up “I do.”

The 5 year old saw a few of her friends and decided to run and play. The next time I looked up, she was talking to the people running the kid karaoke. My youngest is still learning to read - she's just 5. She cannot look through the catalog of songs and pick out an artist. After she finished talking to the folk running the karaoke, she came over and told me the song she selected to sing: "Best of Both Worlds" - the theme song for Hannah Montana.

After telling me, she told her friends and their parents. Then the waiting began. The 5 year old sat and waited. She was patient. Eventfully, my oldest came over and heard that her little sister was going to sing. The oldest likes being shy, however, Hannah Montana is her favorite show; and she's not going to let her little sister show her up. Well, the youngest wanted to sing alone. When the oldest prevailed upon me, the youngest relented.

The total wait time was about an hour. The 5 year old sat and waited. And waited. She was never bored. When it was her turn, she ran to the stage. The 8 year old casually sauntered - she was cool. The oldest thought being able to read the lyrics would be an advantage. The youngest just knows the song. Each daughter had a mic. The cool 8 year old – no gestures; no facial expressions; just singing. And the 5 year old performer jumped around, sang loudly and was very animated.

I'm proud of them both.