The Real Charlie

Staying the Course

Unless you live in a dark and damp hole in the woods, you are aware that the securities markets have been a bad place the past few weeks. Like many, if not most, investors, I am not doing well year to date. My biggest problem is my exposure to some auction rate securities, which I can't sell for love or money. Otherwise I'd be happier, actually, because I'd be looking to use some of that capital to buy some of the bargains and near bargains out there on the market, especially among some of the big European companies in the financial, consumer staples and industrial areas, and among some of the US mega caps in industry, technology and, yes, a few financial stocks. But until I can get at my (famous last words) "cash equivalents," I am on the sidelines.

Except that I sold my last holdings in Bank of America last week, after several decades of owning Connecticut National Bank, Shawmut, Fleet and then Bank of America. I've been whittling the holding down for about eight years, and said goodbye to the last little bit after a terrible year or two. Incidentally, I was also a lifelong (literally, as my parents opened a Hartford National Bank account for me as an infant) retail customer of BoA and its antecedents, and "fired" them two years ago. Not a quality outfit in many, many ways. Good riddance.

I did finally invest my IRA rollover. I ended up with more money than I expected, so I went from X all in Blackrock Global  Allocation to 6.5 as follows:

2.5X in Blackrock Global Allocation
2.5X in iShares Lehman TIPS
1.5X in cash

I am still looking to get that cash down as I am getting a 0.10% yield annually on it. I am looking at some other "asset allocation" managers, particularly the Bob Arnott advised funds at PIMCO, All Asset and All Asset All Authority. They are both funds of PIMCO funds, and the later can hold short-biased sub-funds. Not a bad idea, in this market. As always, I'll keep you posted and, also as always, my financial advice and ideas are worth what you just paid for them.

And sorry for the hiatus, as Typepad fixed some annoying bugs and I finished a massive SLEP (Service Life Extension Program) on my iMac G4. More memory, new OS, new backup drive -  its practically modern! And I even own an iPod now! 21st century, here I come!

Success!

The mystery of my 403(b) rollover has been solved. My former employer's HR department sent the paperwork directly to the investment manager, who then sent the check directly to my financial adviser, where it showed up, without notice, today.

So now I am back to my asset allocation decision again. Right now my IRA is 10% in cash and 90% in the Blackrock Global Allocation Fund (MDLOX, for you ticker checkers). The IRA has X dollars in it (X being a relatively small fraction of my total portfolio), and the new additions will bring it to 6X. My plan, for tonight at least, is to allocate the IRA as follows:

2.5X in Blackrock Global Allocation
3X in the iShares TIPS ETF, for some tax sheltered exposure to a real return asset class
0.5X  in cash

How might I change it? I am concerned that the TIPS are really overvalued right now, as are most real return assets. So I might go 5.5X into the Blackrock Global Allocation, or add some Diamond Hill Long-Short into the mix. But I have learned that the Diamond Hill is actually fairly tax efficient, so I might wait and save that for the taxable account instead. Another option would be a global (ex-US) bond fund, or a fixed income asset allocation fund that can do for FI what Global Allocation does for everything that's not tied down. I'm going to mull it over for the weekend, and I'll let you know what I decide.

End of May?

It is hard to believe that May is almost over. The month didn't even fly by, it just vanished, in a flash. So, a few late spring updates and thoughts:

1) No, I still haven't gotten my 403(b) money emancipated yet. Yes, it has been two months. And yes, the nasty letter is coming. Should I start it out "Dear Thief" or "Dear Loser?"

2) Today I was walking home from the train, about 3/4 of the way home, and I heard some familiar squeaking from up ahead of me. My girls, all three of them were coming down the street. I waved, and the two little ones broke into a run (more of a gallop, actually) and caught up with me, and gave me a hug. My boss, whose daughters are 11 and 14, keeps telling me to enjoy this stuff, as the little girls get big fast.  With a welcome home like that after along (but fun, and productive) day, how can I not enjoy it?

3) This morning, my train got in fifteen minutes late. Yesterday, my line was disrupted by a lightning strike. This afternoon, two trains on another line collided. One of my favorite conductors retired and another switched lines. Why do I have the funny feeling that my mass transit honeymoon is over?

Let My 403b Go!

So I left my previous job at the end of February. In April, like a good boy, I asked for the papers to get my 403b account rolled over into the IRA that I manage for myself. I picked out the investments (some TIPS, some Blackrock Global Allocation), signed and filled out and saw the notary. Then I mailed it all to my former employer for verification of my having left their employ.

And I have heard nothing. For a month. I know they got the papers, because I sent them return receipt. They are either lost, or sitting on someone's desk, or someone is being an ass about it. I just want my money. So I called today, and did not hear back. I'll give them tomorrow and Wednesday, and then the next letter goes to the CEO.

Let this be a lesson to you all: it is all well and good to save for retirement, and to intend to keep one's assets properly stewarded after one leaves. But it is another thing altogether to claw one's money loose from the grips of incompetent bureaucracy!

On A First Name Basis?

So I took Roxanne to "Early Arrival" at nursery school on Monday (really called Early Drop Off, but we re-branded it Early Arrival in our house after it became apparent that Roxanne thought we were going to simply drop her off on the corner and speed off), a task that I enjoy, as we get some nice daddy-daughter time together, and that I will soon miss, as my new commute will not allow me to drop her off. She had on a new all black ensemble (thanks to my Mom and Dad) on which she was effusively complimented by her teachers. I chatted with the teacher and then shouted goodbye to Roxanne, who was already ensconced in some drawing. "Bye, Charlie!," she shouted back. The teachers cracked up and I gave her a kiss, and a gentle reminder that, hipster wardrobe or not, I am still daddy to her.

I am winding things up at the old job now, among them my retirement savings accounts (a 401k and a 403b). The fund choices at my current gig are just adequate, at the new job not much better, so I am rolling the nice little pile of cash that I've accumulated, and in which I am fully vested, into an IRA that I established previously with rollovers from prior accounts. Right now that small IRA is 10% in cash and 90% in Blackrock Global Allocation (MDLOX), a nice fund in the "tactical asset allocation" model that has done well in recent years. MDLOX has a nice track record going back a decade or more and I'll keep it.

But for the new money, I am actually going to pick up a new asset class - Treasury Inflation Protected Securities, TIPS. These are US Treasury bonds that pay a lower coupon but adjust the principal value up each year to keep pace with CPI inflation. The breakeven CPI rate is around 2.5% -  an easy hurdle to beat, especially at this point in the economic cycle.  The problem with TIPS is that the principal adjustment is taxed as ordinary "phantom income," which is not great in a taxable account. But in an IRA, that is no problem. So this is step one in my process of picking up some "alternative assets" - some real return securities, in a tax sheltered account. The next step is picking how the TIPS exposure will be executed - ETF, fund, etc. Stay tuned, if you care.

Speaking of retirement funds at work, here is a neat trick, not original to me. Every year, increase your deferral rate by at least 1% until you hit the maximum dollar deferral ($15,500 in 2008 if you are under 50), especially if you get a raise. I've been doing this for a few years. I don't miss the 1% of my salary, and it helps that retirement fund grow a little quicker. And yes, when I start the new job I'll bump the rate up 1%, just as if I'd stayed put, regardless of how much of a raise I am getting.

Lashed To The Mast

This has been a very, very tough year for the equity markets, all twenty days of it thus far. I have felt it, and some stocks that I have loved for a long time (Bank of America, my ishare portfolio) and others that I have held for shorter periods but had great hopes for (Barclays, Novartis) have gotten pounded. The temptation is to pack it in. I had two colleagues approach me at work last week and ask about "getting out" of the market. One of them was really overexposed to small cap, and is seventy, so I helped him pull back a little bit. The other is much younger and was really overreacting. She was looking at going 50% cash, 30% bonds and 20% equity. I congratulated her on her imminent retirement, then explained that she had described a classic retiree's portfolio. She has decades of work ahead of her.I think that I talked her down.

I feel the temptation, too, not to run away but to stay too much in cash  ( as I told you late last year, I fired a manager and have 60% of what they used to work with in cash right now) and to break away from my long-held value & income bias. My ishare portfolio, which I've mentioned before, breaks out at 25% S&P 500 Growth, 25% S&P 500 Value, 20% "DVY" Dividend Achievers, 10% Mid Cap Value, and 5% each Mid Cap Growth, Small Cap Value, Small Cap Growth and REITs. Only the large growth did well last year. I was tempted to readjust, take on more of a growth bias going forward. But no. I will rebalance in early February, to the same standards as always. I will keep looking at some of the new opportunities out there in terms of alternative managers and in terms of some stocks that I've long wanted to own that are now, finally, pretty cheap.

I am lashing myself to the mast, and trying to ignore the sirens' song. So hang in there, and unless you are about to retire, try to stick to your long term plans.

Poopa and Total Return

Happy New Year, reading public. I've been doing some cooking the past few days from "Aromas of Aleppo ," a beautiful and very usable new cookbook from the fabulously named Poopa Dweck. Abby and I've made a couple of deserts, a green bean dish, a great baked kibbeh, a beef and rice stew and a few other things. The recipes work, the ingredients are accessible (aside from a few spices I picked up at the local Arabic market, but they have most of them at Whole Foods too) and the book is full of interesting facts and stories about the Syrian Jewish community. If you cook, especially if you cook kosher, I recommend it highly.

I am still waiting for year-end data on my overall investment returns, but my individual equities and etfs were a pretty mixed bag, redeemed in part because I hold a lot of dividend paying securities with cushions the blow when capital returns are low and down. I had eight double digit total return gainers: Apache (62.6%), the EEM emerging market etf (33.4%), the EWC Canada etf (28.4%), Exxon Mobil (24.1%), Verizon (21.7%), Microsoft (20.6%), the Reaves "UTG" Utility Fund (12.9%) and the IJK MidCap Growth etf (12%). I had five big losers: Sysco (-13.0%), Cognex (-14%), Bank of America (-18.2%), the ICF REIT etf (-19%) and Barclays, which I bought last January, down 28% since I picked it up.

Verizon is one of my larger positions, so that was great, but Bank of America is a larger holding as well, so that hurt, even though I had sold some of it early in the year. I was pleased to get out of Home Depot and Comcast with single digit gains, as they tanked later in the year. Cognex has been a poor performer for me for a few years, but is a very small position that I may yet hold onto. I like Barclays longer term and may yet add some more to my position. BofA is a longterm core holding for me. The Sysco I might dump at some point, I am up long term on it but am no longer especially excited about the stock or the company. I am looking at all sorts of interesting new ideas - vehicles, managers and allocation schemes -  for 2008, and I'll keep you posted.

As far as resolutions go, see this post from last year? Delete the desk cleaning (I am better on that), make it "10 pounds or so" and keep the rest, all under the header of "Don't Be Lazy, Glassenberg." Sigh. 

Reallocationmania

So this past week was a much quieter week compared to the previous one's snow stranding, toddler rash (Roxanne had a reaction to some antibiotics and ended up looking like a cross between a giraffe and the kid from "Mask," but much whinier) and general high stress level. Partly, one of my bosses is away, which helps reduce that somewhat lucrative background noise of life that I call work, and partly it is that I am about to start one big project and have just finished about three others. The calm before and after the storm, so to speak.

I will revisit my recent investing thinkings aloud, as I have finally taken some actions. I terminated the long municipal bond manager - they just weren't doing anything, and my adviser was losing confidence in them. I took the cash and allocated it as follows:

15% will stay as cash and actually will get spent down over the next year on things like my mortgage, bills, gifts to my girls for their 529 plans, etc., which lets me leave other cash alone.

35% is getting given to my remaining manager, the 3-7 year municipal bond manager who is doing much better.

50% is getting put into an account that I personally manager for "opportunities to be named later," probably a mix of equities, alternative-style funds and maybe some option driven strategies. Given where the market is at, I am in no big hurry to buy anything at all right now, and figure I'll be investing this chunk of it over the next 4-5 months. I am also considering, albeit pretty casually, moving this money to am entirely new manager, depending on what my current adviser comes up with between now and the end of January.

It is an example of where this market is at that I am now spending brain power worrying about the health of my money market fund (MMF). People think of these as "safe cash" but they really are not - they invest in all sorts of commercial paper, asset backed securities and other out of favor sorts of things. Some, though, invest only in T-bills and short term US government securities. So I am considering taking a major hit on yield (like 150 basis points) and switching to a treasury MMF, as well as buying a few more FDIC insured CDs (I picked up a four month 4.75% late last week to park some extra cash) for money that I don't need anytime soon. I guess that in this market I want my safe to be really, really safe.

Finally, we are not Christmas people here in the House of The Real Charlie , but I am admiring the beautiful lights on the house across the street as I blog tonight, and it reminds me to wish those of you who celebrate a merry and joyous one.

Wintry Mix

A few things for an icy evening:

1) This was my first real nasty wintry drive in to nursery school with Roxanne today. We managed to skid off the road while trying to avoid colliding with an oil truck, skid into our parking spot while avoiding a nimrod standing in the middle of the road in Newton chatting with a friend and skid into the door of the temple. That last skid only involved Roxanne's head and not the car. In all accidents, no cars, children or daddies were harmed.

2) I am still pondering my next moves investment-wise. Now I am tossing the idea of re-evaluating my basic investment manager decision into the mix. I use a stockbroker with whom I have a "fee-based" relationship - he charges me an asset under management fee, but part of it is commission-based. He provides good but spare advice, access to good research to back up my own decisions and excellent customer service. Someone else I know uses a father & son team of all asset money managers. They charge a fixed fee, use a discount brokerage for custody, make all the investment decisions based on their own underlying strategy (which involves a lot of cash and treasury STRIPs, covered call writing on consumer staples, financial and technology stocks, little international exposure and some shorting), generate superb returns even in down and choppy markets, but offer weak customer service (due to the discount broker, which stinks) and some limited options on certain things (like smaller sub-accounts for IRA rollovers, etc.).  I feel like I am at a crossroads where I need to either get way more involved in day to day management of this money or just dump it all on somebody else.

3) Hanukkah is winding down. One more night of gelt, candles and gift-mania. It has been fun to watch Roxanne enjoy it, singing the songs and prayers and getting mesmerized by the candles, and watching Stella start to learn that something special is going on.

Hope your holiday has been, or will be, as much fun.

Changes

I made a few changes to the left amidst the "Blogs of Note." I deleted a few that I had gotten less interested in and added two new ones:

The Swellesley Report is a nice summary of what's up in my little corner of suburbia, from the local papers, town hall and general word on the street. It's no Universal Hub, but then again what is?

Star Spangled Haggis is a delight. Sincere, snarky, loving, irreverent. I don't agree with her politics, but otherwise I love it. And as a bonus, her daughter "Bambina" is a pal of Roxanne's from the tot biz.

I am also contemplating changes on the investment front. I think that we are facing a recession next year. Not a big one, not a deep one, but one nonetheless. The housing slump is biting hard now, and dragging the consumer-driven parts of the economy down with it. Capital is still tight for corporate borrowers. Every indicator I see looks bad. Not awful, not disastrous, just bad. So I am hunkering down a bit, and considering a few moves.

One of my fixed income managers is not doing so hot. They manage tax exempt long bonds (25-30 year maturities), A and AA credits. I might liquidate, give some cash to my other fixed income manager (3-7 year maturities, AAA, tax-exempt but with authority to rotate into treasuries if the value is good), build a small "real return" position (probably in TIPS or something TIPS-based) and finally commit to an "alternative investment" fund (probably Diamond Hill Long-Short).

I also want to add to my cash cushion, probably by buying some CDs or T-bills. By the middle of next year or so, there may be some equity buying opportunities. During the 2000-2002 downturn I had a lot of free cash and picked up a nice set of iShares, Apache and ExxonMobil at a fraction of what they are, and some other nice buys. I'd like to be in a position to bargain hunt again. For that, I need to raise some more cash now.

The final thing I am considering is some form of tactical asset allocation. I have seen this really help returns in some endowment contexts and in my own retirement fund. What you do is pick a manger with a global, wide ranging authority and put 10% or so of the portfolio in their hands. Their ability to move more quickly than you can helps out in some turbulent situations, and when trends are just starting to form. I have had Blackrock Global Allocation in my IRA for a while, and it has been super. I might add more to that position, or look at a more fixed income focused tactical fund. I'll keep you posted.

Now if I can just keep my name out of the Globe for a few weeks...