Mapgirl’s Fiscal Challenge

I keep telling myself that what goes down must go up….right?! -SavingDiva

Sadly, no. The market doesn’t have to do anything. You’re applying the law of gravity to something dependent on the rationality or the irrationality of human beings. Physics and Investing only have high end mathematics in common. Even so, investing can be completely subverted by crazy investors. (”Irrational exuberance” anyone?)

What you really need to do is stop and assess what is happening to your investments and why. I ask myself this stuff all the time.

Am I in solid investments that will really rebound in the next 5 years? Or will they stay flat or take a turn for the worse?

Am I in it for the long haul? If so, is this just a minor road bump or a major impasse?

I kept thinking that “what must go down must go up” during the dot-com boom years and quite horrifically, I was mistaken. I lost my proverbial shirt in the process and about $4K. Luckily, time was on my side and I’ve only recovered by doing a lot of savings.

One thing I’ll tell anyone is that selling means you’ll never make money again on that investment. You’ve locked in your losses by selling. But if you’re alternative investment is a winner, maybe that’s not so bad. That’s the reasoning behind selling off crap investments in my old 401k and shifting it to BRK.B. If I had dumped it all in pink sheet stocks, that would have been a disaster. (As it is, I’m now holding TXN and GE in long positions. Not too much, just swept up what cash was leftover from the BRK.B buy.)

In reply to Andrew and Mrs. Micah’ comments about BRK.B and how much to buy, FWIW I’m holding 70% of my investment portfolio those shares. I know that is a crazy amount, but Berkshire Hathaway does not sell its investments, so it’s akin almost to holding a specialized industry index fund, so I do not look upon it as an active trading portfolio investment. Therefore it’s in that 90% I let other people manage, which is the same advice Mr. Buffett recommends. I know that’s a bit crazy to hold so much of any one thing, but I’m putting away regular 401k savings and that should eventually even things out over time. I don’t plan on buying any more Berkshire Hathaway stock, not even the A shares.

In a phrase: Unexpectedly crappy.

I am just shocked at how much my retirement accounts shrunk in July, despite a regular contribution to my 401k account. It’s a disaster and a half! I lost almost 4%, and that’s offset by the contribution. Oh well. I know most of it is a dip I took on BRKB. I knew I should waited till it was at the price I really wanted it, but I’m bad at timing the market and that goes against the philosophy which drives the company’s investments, so que sera sera. (Theoretically, any time is a good time to buy a value investment. After all, it should go up…As for the commenter earlier who said I should worry about Mr. Buffett’s health, I am aware of the problem, but something tells me Mr. Buffett does not do this alone and no, Mr. Munger’s health doesn’t bug me either.)

I have a new entry this month for non-retirement stock investments. It’s because of ESPP participation at work. I will be saving about $350 a month in cash, but reporting the value of the stock at the end of the month with each rise and fall. I am happy because this means I get some dividends per the ex-dividend date in a few days. Yay! (Ex-dividend date means you have to hold the stock by this date to get the dividend payout approximately a month later. Watch these dates carefully if you are thinking of buying a dividend yielding stock.)

I left the home mortgage untouched as I cannot figure out the exact number since statements will not arrive till later this month. (For some reason, I don’t check these accounts online and have never bothered to set it up. It’s good enough the way it is.)

The big thing is that I am actually making some progress on my credit cards. Not a lot, but some.

With the closing of my old 401k plan and the purchase of BRKB, I’ve had to rethink my entire portfolio allocation.

I was overexposed to international stuff before, like 50+% of the old 401k plan. The remaining money was in either an S&P500 index fund or a domestic large cap fund. Either way, all of it stank up the universe for the first half of 2008.

Now that my money is in BRKB, a US large cap company, I need to rethink where my money is going in my current 401k.

Currently, it’s about $4K since I started with my company in January. I’m not maxing out my contributions since I’m trying to pay down my credit card debt at the moment. That $4K is half in international funds, 10% company stock fund, 5% REIT, 5% dividend growth fund, and 5 and 10% slices to some international region specific funds, and some actively managed funds that I wouldn’t normally be able to buy since I don’t meet the minimum account balance. (But my 401k plan is large enough that they let us buy it anyway.)

Now that I’m completely out of an S&P index fund, and I don’t have an S&P500 specific fund, I’m now putting 40% of my ongoing contribution to a total stock market fund. I am also starting to put 5% of my post-tax salary into an employee stock purchasing plan which gets me a 5% discount. I don’t feel the need to stop buying into the stock fund as that is tax-sheltered. I will rethink that if my total company stock holdings are more than 10% of my entire investment portfolio, but that won’t be for a few years anyway.

Along with those two domestic stock investments, I am still putting 5% into a REIT and dividend fund, and small 5 and 10% slices to the same small places as before.

It’s not the most scientific way of doing things, but I’m ok with lots of risk.

The only cash I’m holding is in my rollover IRA for whatever was left over after buying the Berkshire shares and I’ll probably just sit on it till I find something else that’s good to buy.

One other thing I’ve noticed is that I’ve crossed the threshold mark of having over $25K in assets with one investment house. It doesn’t really gain me a whole lot since I don’t have enough to get a break on commissions, but if I was an active trader it would. (Which I’m really not. Like 5 trades a year.)

Last week, I finally rolled over my old 401k account. The reason I closed it 7 months after leaving my job was that my last paycheck triggered account activity in two of my funds and I would have had to pay a penalty to move that money out within 60 days of the last transaction. CRUD. So I decided to wait the 60 days. One of my new co-workers told me that they could transfer the shares from one company to another, but he was wrong about that. Most plans don’t work that way. You can keep the shares if you roll over the balance and stay with the same company, but I hated the investment company that held this account and wanted to move the money somewhere else.

If you know you are leaving a company and you have to wait 60 days from your last transaction to move our money out of a fund, stop contributing to that fund 2-3 months before you leave your job. Then you can rollover immediately upon quitting.

As for me, I decided to wait till the balance rebounded, which never happened. (Can you say high of $28K, low of $21K?) Finally, I said forget it. I know where I can get a better return without the stress of staring at a depressed balance.

So I liquidated it by telephone with CSR’s from my current IRA company and the old 401k one. I have no idea why they need to do a paper check overnighted, but the money landed in my account on Tuesday night and was available for trading on Wednesday at market open.

When will these companies reach the 21st century and do an EFT for account rollovers?

That’s just nuts. You can online trade but not move money over a wire? Stupid. Oh and then I was charged a $10 fee for the overnight service, which wasn’t truly overnight, i.e. access in 24 hours.

I turned around and bought 5 shares of BRKB. I finally fulfilled my dream of owning Berkshire Hathaway and getting a coveted copy of Warren Buffett’s annual pearls of wisdom. I’m not the savviest investor, not by a long shot. But I feel like I can keep my head down and go with Berk B for a long time. It was a good time to buy it since it’s down about 20% for the year and backed off the 52 week high.

Now there’s just a little money left over and I’ll be shopping for some depressed stocks to buy and hold. Anyone out there got some good dividend stocks they like?

Tom Konrad at AltEnergyStocks.com emailed me to let me know of a new post he has on a Wind ETF called FAN. Personally I have some issues with wind power. The turbines are louder than you think and can shred a bird pretty bad. On the other hand though, wind power farms aren’t usually in densely populated areas. If you are interested in energy investing, an ETF is a good way to go because it spreads your risk in a basket of stocks, similar to a mutual fund, but not quite the same thing. There just aren’t that many alternative/clean energy investments out there unless you go with some smaller riskier companies or large conglomerates that only make a small fraction of revenue from this sector as Tom points out.

I especially liked the post because there is a model portfolio at the bottom with a sample of dollar allocations. Sure I don’t have that kind of money to invest, but it’s interesting that he’s put CREE in there as a power company. I’ve been watching CREE for years because they were the first to make a blue LED. I just never bought it because I never had the money at the right time. To me, it’s a stock to buy only when it’s priced right. I’m glad that he thinks it’s a winner too.

The LA Times recently ran an article on other low-carbon emissions power efforts. There’s geothermal & solar/mirror/steam power. Some of these companies are worth noting because they have super star backers like the founders of Google. A lot of the mainstream energy companies are dipping their toes into these technologies so keep an eye out for some of these technologies to emerge over the next decade.

FWIW, a friend of mine told me that rail transport uses less fuel than trucking for freight transport. Apparently Warren Buffett has put more money in rail stocks as well. Some food for thought.

For disclosure, I’m still holding AMAT in a long position. It’s considered an alternative energy stock since they make capital equipment for making solar cells. And man, I’m glad that oil fell $4 a bbl yesterday!

Someone asked me recently about investing in renewable energy stocks, but asked if there were any special mutual funds for them. Knowing that there are socially responsible investment vehicles out there, all it took was a simple Google search for “alternative energy mutual fund” to turn up two solid articles from CNN and from Altenergystocks.com. Neither article is moldy oldy. They’re within the last 2 years and the Altenergystocks.com article has a follow up link from October 2007.

Personally, I’m holding Applied Materials (AMAT). Not because they are some special renewable energy stock, but because they are the leader in semiconductor manufacturing. However, as a leader in chemical-vapor-deposition products, their machines are also used to make photovoltaic products, i.e. solar energy collectors. I bought it a little too high, but it pays a dividend and generally moves cyclically, so you can always buy more on the dip. I plan to hold these shares forever because computers are never going to go away. I’m just putting it out there since apparently their stock jumps on press releases about their solar product line. I doubt it makes much money for them, but easily every single chip in the electronic device you are using to read this post was made on one of their machines. (FWIW, Lam Research (LRCX) and Novellus (NVLS) are probably their two biggest competitors and I’d buy those too, but they don’t have dividends.)

A few of my friends have made money off of Evergreen Solar, but I’m not interested in it myself. At any rate, the person who inspired this post isn’t interested in single-stock investments for various reasons, high risk being one of them.

Normally my Propser account isn’t worth mentioning. I only have four loans at $200. I made a principal investment of $175 and the final $25 is interest that I earned on the initial loans.

Usually I get about $1.50 on the principal paid back on one of my loans, but recently after Christmas, I noticed that he paid me twice, and the second payment was for about $8.00 of principal. I figure that he must have used some gift money to make that additional payment.

I’m happy about this because for another $10, I can make a loan with the cash in my account at Prosper. It’s $50 minimum to bid on a loan and pretty soon I’ll have that cash available. Lately the FOMC has lowered rates (TWICE!) to jumpstart our economy during this recession, but it bums me out. I really want to make a better average return on my investments this year. Last year was terribly disappointing so I’m thinking of putting a little more into Prosper this year. Longer term CD’s have crappy rates at the moment, so I think it’ll be fun to put some more into Prosper.

I’m also looking to buy some dividend stocks as well. Of course, I have this crazy idea that I might buy some BRKB shares too with my 401k rollover money. heh. For those of you who don’t know, these are the cheap shares of Berkshire Hathaway. Full price BRKA shares are crazy expensive.

I think I’m going to be lucky if I reach the peak of my 2007 net worth.

The reason is two-fold.

1. I am taking a bath in the markets lately in my retirement accounts. Coupled with my low contribution rate in 2008, I think I’ll be lucky to be flat and not lose anything in the funds I hold. I have shifted some money around to re-allocate to a heavier international portion, but honestly, I think things aren’t look too good globally either.

2. I just got my 2008 real estate assessment and I’m taking a $4k hit on the value of my condo. No worries though, I’m still up 14% on my original purchase price from 3 years ago. Unlike other people who bought at the top of the market, I bought an undervalued property and am still enjoying a positive increase in valuation. With the way regional planning is being done, I actually am primed for a huge increase in value in my property in the next 5-10 years. (They’re putting a new trolley/lightrail system a few blocks away, which they want ready in less than 10 years.)

Add on all that some changes in cash flow with my job transition and I’m holding onto cash as much as I can right now, but it’s been tough since I know I have to upgrade my wardrobe and I cannot submit my eye surgery to my new Medical FSA account just yet.

Hardly. I’d drink it first for the sheer pleasure of the thing. But this article (if you can read it. It might require registration.) from the Washington Post highlights wine as an investment. I am not sure how easily flippable wine is, but you often hear about wine at auction in NYC. Basically a restaurant stocks their cellar and then at a future date decides to sell off what they have at auction. Private collectors do the same. To me, it’s a volume play. The man in the story who has a single bottle of the 1990 Petrus should just drink and supremely enjoy his wine. Unless he has a full case, it’s kind of silly to sell it off unless he’s involved in a club with some serious collectors or something.

Leave it to me to start the Friday Drink topic early. *sigh*

I suspect this year my Month-Over-Month net worth growth will wind up being negative in December. There’s just too much going on for me right now with my medical expenses and overspending. I have had one too many splurges over the holidays.

I had a nice comment the other day asking me to update the NetWorth IQ graph, which I have done. I haven’t been home a lot, and that means I have been spending money out the wazoo. Because I waited so long to do it, November represents a very accurate picture of my finances. Usually I do not wait for my HELOC statement to come in before doing the update. I often just estimate it because it arrives so late.

I ended 2006 with a net worth of $34K, even. This year, I will end up around $48-49K, $50K if the market does better. Like most people, I took a serious hit this November as the S&P stagnated. However, I did use this as an opportunity to buy up a little Citigroup stock as a long-term hold generating dividends. It does not appear that they will cut their dividends any time soon, so I am relying on the depressed price to bring me good yields over the next decade. Yes, I hope to have it that long.

Examples of my holiday splurges:
1. Theater tickets
2. Super nice Christmas presents for my co-workers. Over $20 each.
3. Shopping with my friends and realizing, “Hey, I need that too.”
4. Baby shower gifts

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