It is time for another update to my monthly personal finance journal. The stock market pulled back in September. My investment portfolio went down a bit less than the stock market indexes (Mission Accomplished!) and my balances continued to modestly increase.
THIS MONTH
As a reminder, I ended August at about $272,000. I made some progress in September, ending the month at about $274,000. I stepped up the savings a bit in September, saving about $4,000. I’ve written about this before, but I basically automate as much of my savings as I can.
Some of these savings were offset by investment losses. It seems like the loss of about .70% (70 bps) was quite a bit better than the stock market.
CURRENT PORTFOLIO
I am still the unintelligent owner of a good chunk of foreign stocks. See Media Pin of the Week – More GMO, Weekly Media Pin – Grantham on Graham, Best Foreign Value Factor ETFs, Resource Roundup: More CAPE, and Foreign Value Factor ETFs Update. This weighting is nothing crazy; about a 30% overall allocation to foreign stocks (about half of my equity allocation).
I do have most of this exposure via EAFE stock index funds. I am trying to limit exposure to China (and some other emerging markets). I just do not like building an economy and investing my capital where you don’t have a good foundation of the rule of law.
As you can see from the chart, the $SPY was down (4.64%) and the $QQQ was off (7.23%). Foreign developed stocks were down only about 2.5% ($EFA). Value stocks did better (represented above by RPV and ZIG). It is nice to get a month or two of outperformance versus the QQQ every few decades. hah.
I don’t really have much allocated to systematic value, in the style of these ETFs, right now but I do tend to look in that zip code for my active investments.
Overall, I also have about 40% in t-bills or their equivalent. This is primarily due to the fact that in my 401(k), I allow myself to modify the asset allocations between stocks and bills based on valuations (within limited bands; basically from 50% to 100% long). Right now, I have the allocation to stocks closer to the 50% end of the spectrum (’cause y’all crazy).
TREND + VALUE ALLOCATION
In addition, I manage some of my portfolio based on a very simplistic systematic, trend and value strategy. In essence, I apply one of the simple moving average signals (thanks to covid-19, everyone is very familiar with moving averages and how they are used to “smooth” lumpy data to try and discern the trend) and combine that with a valuation trigger/overlay/condition precedent.
The idea is to have some risk management in place when stocks are expensive by selling when they also have negative time-series momentum/trend (for example, when stocks are down over the last 12 months). When stonks aren’t “expensive” I should be long and strong.
The account is divided equally: ~33% each to the S&P 500 ($SPY), the Dow Jones Completion Index ($VXF), and foreign stocks (basically, $VXUS).
I have about 15% of my investments in this account/strategy, but I am maxing contributions to this account. So it should become a larger allocation over time, unless the relative performance stinks. The account is tax-deferred and there are no per transaction costs. I only allow changes once a month in an effort to limit the number of “whipsaws”(when I sell and am forced to buy back into the equity exposure at a higher price).
I made a change back in June to go back “full long” after moving to t-bills with the U.S. allocations back in March. I took a whipsaw on that move out and back. The account is down (2.27%) YTD (as of writing).
This account/strategy continues to lose YTD versus my benchmark: a globally version of a 60-40 portfolio: 20% in foreign stocks, 40% in total U.S. market index and 40% in t-bills. That benchmark is up 4.84% YTD. SPY is now up 4.56% YTD
ACTIVE INVESTING JOURNAL
I only actively manage (I’m talking “stock picking” here) about 10% of my overall portfolio, but I really enjoy following the markets and companies. So, I am going to start adding a short “investing journal” section to these monthly updates. The goal is just to informally track my thinking for future reference/analysis. I will also pull together info I want to refer back to in this section.
I’m going to keep this section pretty short this time. I’ve got to do my quarterly fun fund update in the next few days, so I don’t want to go over the same ground twice.
In my HSA I’ve been buying more REITs. I get it, real estate is going through a tough time. But the REITs are (amongst) the biggest scale players with ready access to capital markets and the most of the best properties. They also have priced in a ton more disruption than have the private markets (which have been basically frozen in time, from what I can tell). I definitely think the death of cities and of office is vastly overstated.
To me, cities are the original example of network effects. The more talented and whatever people who move there the more likely you can find a good date/partner, or a good poke bowl, some good jazz, or a person to seed your fund, or an SEC school ballgame watching group, or whatever you want.
I also think a thesis where there is no office space/use ignores human nature. Do corporations need private jets? Have they really needed to meet in person most of the time since maybe the invention of the telephone? Isn’t having a trophy office building packed with smart skilled people basically on call waiting to do stuff for you the ultimate status symbol and one of the main reasons to become a corporate chief?
Anyways, I’m not making some huge call. I’m just scaling in. I agree it could get worse before it gets better. It seems like the GFC was not nearly as bad for city living or office use by any stretch of my imagination (so, I could definitely see us revisiting and even blowing past those, lower, observed valuations).
I own a little SLG, VNO, EQR, EQC, and JBGS. I am probably going to hop into some AIV (to diversify my residential exposure) for a chance to participate in a little corporate democracy if I can get my price. [There’s a potential proxy fight brewing there over a proposed taxable spin-off plan].
I haven’t bought any $STOR yet. (wrote about it last month) Seems to me like it needs to get a lot more obliterated given what it does and where it operates. I did get pretty comfortable with their strategy as a “net lease” vehicle.
I didn’t do anything else, really. I added a little $DIS and $CMCSA in a small account for my kid. I haven’t really looked at $MGM too much.
I am becoming pretty put-off by the political tweeting and ideology of Jeff Sprecher’s ($ICE, discussed last month) spouse. I just wonder if it says anything about his cognition/political ideology. His political donations seems to be strongly skewed toward one party, which is fine. In this case, however, I think they are really off-base in continuing their support and it makes me uncomfortable with their cognition/mental biases.
It’s worse than an investor who pounded the table on Valeant, after Munger told you to be wary, at this point. I am going to strike $ICE off my watch list.
GOALS!
With the new year/decade, I established some goals for 2020. I have been tracking them in my monthly journal posts to try and prod myself along.
I am still on pace with my $50K in annual savings/contributions to investments. My body composition goal is status quo…
As for the goal of reading 12 books, YTD I have finished:
When Genius Failed, Concentrated Investing, Factfulness, the Rebel Allocator, Walden, Towers of Debt, and Sapiens.
Sapiens is kind of what the subtitle says “a brief history of humankind.” It was a pretty interesting summary of one view of how we may have evolved. I do wonder how this view is impacted by continual discoveries, such as the recently discovered fact that we have more Neanderthal DNA than believed because there is more Neanderthal DNA in the genome of modern Africans (which they were apparently using as the frame of reference to determine the amount of DNA in other populations). So anyway, I’ve learned to take aspects of pieces like this with a grain of salt and view it more as food for thought. I gotta’ say I found the last few chapters to be kind of a left turn in Albuquerque.
Harari goes on this sort of theoretical bender about how we are going to evolve/extinguish Homo Sapiens by either creating AI, genetically engineering a new Species or by becoming cyborgs. I didn’t really get how this flowed from his great discussion of how complex societies formed and how certain attributes of our species and tools we developed led to that outcome. I guess the idea was that we extinguished all these other species along the way that eventually we will do it to ourselves by sort of forcing evolution based on our own design. I dunno. I guess I have to read Homo Deus now.
I also started reading Thinking in Bets. I’ve read a fair amount of the behavioral psychology and finance (Kahneman and co.) stuff, so we will see how it goes. I still haven’t finished the Perfect store, but I have bought a fair amount of eBay stonk.
ONWARD
So anyways, that’s that. On the personal finance front, I saved a little and the market destroyed some of those savings, real time. Put the beat-down on the QQQs last month, so suck it galaxy-brain-bubble-bros. Once a decade, you get yours.
Next up on the blog (probably) is the Q3 2020 Fun Fund update. I got smoked by the indexes, so it should be fun to write. Thanks for reading!